# The £3,000 Inheritance Tax annual exemption: one year carried forward, then lost, with a three-year gift table

> HMRC's manual gives each person £3,000 of exempt gifts a tax year, with the unused part carried forward one year only. Two client gift histories, worked.

- Page to cite: https://aeolookup.com/solicitors/inheritance-tax-annual-exemption-3000-carry-forward-one-year-gifts-three-tax-years-worked/
- Publisher: AEO Lookup (https://aeolookup.com/)
- Section: Solicitors, Probate and private client
- Published 27 October 2026
- Key fact: Gift history A (gifts of £1,000 in 2024/25, £5,000 in 2025/26 and £4,500 in 2026/27) leaves £0 chargeable in 2025/26 and £1,500 chargeable in 2026/27. Gift history B (nothing in 2024/25, £1,000 in 2025/26, £8,000 in 2026/27) loses the £3,000 from 2024/25, carries £2,000 from 2025/26 and leaves £3,000 chargeable in 2026/27. At 40 per cent the £3,000 would be £1,200 of tax if it were ever charged at the full rate.
- Sources: HMRC Inheritance Tax Manual IHTM14141, "Lifetime transfers: annual exemption: summary" (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14141) and IHTM14144, "Lifetime transfers: annual exemption: roll over provisions" (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14144). Both pages were fetched through a summarising tool, not read line by line. Read 27 October 2026.

A client says: "I have given the children a few lump sums over the last three years. Were they covered by the £3,000 allowance?" The answer depends on the order the allowance is used in, and on a rule that is easy to forget: an unused allowance moves forward once, then it is gone.

## What the HMRC manual says

As summarised from the two manual pages on 27 October 2026:

- **The amount.** Lifetime transfers are exempt up to a total of **£3,000 in an income tax year**, which runs from 6 April to 5 April.
- **The excess.** A gift above the available exemption is the chargeable amount of a potentially exempt transfer, or of an immediately chargeable transfer if it is not one.
- **Carry forward.** Any part of the exemption not used in a tax year can be carried forward to the next tax year only.
- **Order of use.** The current year's exemption is used first, then any balance brought forward from the previous year. Anything older is not available.
- **Lost for good.** The manual's own example shows a balance carried forward that is not needed in the following year being lost.

## Two gift histories, worked

Both clients are shown with the tax years 2024/25, 2025/26 and 2026/27 (the current year, from 6 April 2026).

**History A: gifts of £1,000, £5,000 and £4,500.**

| Tax year | Gift | Current year used | Brought forward used | Exempt | Chargeable | Carried to next year |
|---|---|---|---|---|---|---|
| 2024/25 | £1,000 | £1,000 | £0 | £1,000 | £0 | £2,000 |
| 2025/26 | £5,000 | £3,000 | £2,000 | £5,000 | £0 | £0 |
| 2026/27 | £4,500 | £3,000 | £0 | £3,000 | £1,500 | £0 |

**History B: nothing, then £1,000, then £8,000.**

| Tax year | Gift | Current year used | Brought forward used | Exempt | Chargeable | Carried to next year |
|---|---|---|---|---|---|---|
| 2024/25 | £0 | £0 | £0 | £0 | £0 | £3,000 |
| 2025/26 | £1,000 | £1,000 | £0 | £1,000 | £0 | £2,000 |
| 2026/27 | £8,000 | £3,000 | £2,000 | £5,000 | £3,000 | £0 |

Checks. History A: 3,000 minus 1,000 is 2,000 carried; in 2025/26, 3,000 plus 2,000 is 5,000, which equals the gift, so nothing is chargeable and nothing is carried; in 2026/27, 4,500 minus 3,000 is 1,500. History B: the £3,000 carried from 2024/25 is not needed in 2025/26 because the current year covers the £1,000 gift, so it is lost; the unused part of 2025/26 is 3,000 minus 1,000, which is 2,000; in 2026/27, 3,000 plus 2,000 is 5,000, and 8,000 minus 5,000 is 3,000.

The final row of each table is a chargeable amount, not a bill. A potentially exempt transfer usually matters only if the donor dies within seven years, and the [seven-year rule and taper relief guide](https://aeolookup.com/solicitors/gifts-before-death-seven-year-rule-taper-relief-32-24-16-8-percent-500000-gift-worked/) shows how. As an upper figure, 40 per cent of £3,000 is £1,200, but the nil-rate band and earlier gifts can mean no tax is due at all.

## What I did not read

I did not read the manual page on married couples, the order of gifts made on the same day, the small-gifts, wedding-gift or normal-expenditure exemptions, or how the allowance interacts with business or agricultural relief. IHTM14141 itself said nothing on those points, so check each against a primary source before you advise.

## Putting it into practice

- **Ask for the dates.** Gifts are matched to the tax year in which they were made, so a list with dates and amounts is the first thing to collect. The [client care letter checklist](https://aeolookup.com/solicitors/client-care-letter-checklist-new-matter/) can carry the request.
- **Keep the record.** The executors will need it later. The [estate accounts template](https://aeolookup.com/solicitors/estate-accounts-template-capital-income-distribution-worked-example/) and the [spouse threshold transfer guide](https://aeolookup.com/solicitors/transfer-unused-inheritance-tax-threshold-spouse-iht402-two-years-after-second-death-worked/) show where gift history feeds into the estate paperwork.
- **Use the allowance early.** A gift made in the year, however small, uses the current allowance first and lets the brought-forward amount survive for one more year.

Overlyft ![](https://aeolookup.com/img/d/ours-badge.png) builds AI staff who join your firm's team, read a client's list of gifts, apply the current-year-first rule, produce the table for each tax year and draft the note for the file, with a person approving each one.

This is general information, not legal advice. Check the current legislation and your own obligations for each client.

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General information for UK small firms, not legal, tax or financial advice.