Wealthy families who delayed gifting until their final years were caught by more than £1 billion in inheritance tax over a four-year period, new figures show.
According to a Freedom of Information request by NFU Mutual to HM Revenue & Customs, 5,080 estates paid in excess of £1 billion on lifetime gifts between 2020 and 2024.
Currently, non-exempt gifts are not subject to IHT if the person making the gift lives for seven years afterwards. However, if they die within seven years, the gift is included in the IHT calculation.
The figures show that the £315 million of IHT paid on late gifts in 2023-24 – the highest amount paid during the four-year period – equated to an average of £226,000 for each of the 1,390 estates caught in that year.
Sean McCann, chartered financial planner at NFU Mutual, said: “With pensions set to be caught in the tax net from April 2027, it’s likely we’ll see more families making gifts to mitigate the impact.
“There is a widely held misconception that if you make a gift and survive at least three but less than seven years, the inheritance tax due on the gift reduces on a sliding scale. However, what happens in practice is that any gifts made in the seven years before death ‘eat’ your £325,000 tax free allowance first, with the tapering of the tax only applying to any part above £325,000.”
McCann said IHT remains one of the “most feared and least understood taxes” and warned that further changes could arise in next month’s Budget.
“It’s possible we could see changes in the gifting rules in October’s Budget, with restrictions on some of the exempt gifts including ‘gifts from normal expenditure’ which allows you to give away unlimited regular gifts from income immediately exempt from inheritance tax provided it leaves you with sufficient income to maintain your standard of living.
‘’This exemption is often used to fund grandchildren’s school fees or channel regular income into pensions or other investments held in trust for younger generations of the family. The unlimited nature of this exemption favours those with high incomes, which may make it an attractive target for the chancellor.”
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