You should thank them and tell them that in Islam, it is not permissible to celebrate birthdays. However, it is permissible to accept their gifts as the Prophet salla Allahu alaihi wa sallam used to accept gifts.

If we do not celebrate birthday but some friends wish the birthday person (like bday wishes by sms etc) or by giving gifts to that person, is it permissible to do so? Or should we avoid the birthday wishes and gifts as well?