UK Families down £650 Million after being caught out by inheritance tax gifting rules

It’s been revealed that families have lost nearly £650m over the past three years after failing to understand the rules around gifting when it comes to inheritance tax. 

Recent findings show that in 2019-20, families had to pay a combined total of £244m inheritance Tax to HMRC on gifts that had been made in their lifetime. This represents an upward trend from £197m in 2017-18 and £201m in 2018-19 and means that an increasing number of people are being stung by inheritance tax bills on gifts they have previously received – and may have wrongly assumed were tax free. 

There are a number of annual tax-free allowances when it comes to gifting to others, but most gifts are ‘potentially exempt transfers’, meaning that they may well be tax free, but only after seven years have passed before death. Until this point, they are liable for tax on a sliding scale, starting at 40% tax for the first three years and gradually dropping to 8% for gifts made six to seven years before death until finally, after seven years have passed, becoming tax free. 

This means that if someone gives a loved one a £20k cash gift but then passes away a couple of years later, the recipient of that gift would have to pay 40% of that sum, in this case £8k, back to HMRC. 

Inheritance tax on previously received gifts can be especially unwelcome as people are not always aware of the rules surrounding this and so may have already put that money to use – making an unexpected tax bill very difficult to pay back. 

Gifts such as these may be simple acts of generosity or may even be part of a concerted effort by an individual to reduce the value of their estate and minimise the inheritance tax bill left to their loved ones after they pass away. Whatever the initial reason for the gift, a lack of understanding of the rules associated with these gifts, or a simple case of bad luck, can leave people in a difficult financial situation following the death of a loved one. 

Dicky Davies, Business Development Director and Co-Founder of Tower Street Finance said: “It’s clear that a lack of understanding around the way that gifts given by loved ones while they are still alive can be impacted by inheritance tax means that more and more people are being caught out by the rules. This means they are forced to pay the price months, or even years, down the line, leaving families faced with an IHT liability they may not have been prepared for. 

“This is where products like our Executor Loan can be a real help, by funding the cost of the IHT bill and enabling people to unlock an estate and access their inheritance with no risk to themselves.”  

Tower Street Finance are the experts in probate lending. We provide a range of inheritance funding solutions, including our Executor Loans, which can help settle an inheritance tax bill. Find out more or call us on 0343 504 7100.