Thinking of making lifetime gifts?

If you are considering making gifts, make sure all your inheritance tax (IHT) liabilities are covered.

Today’s treatment of lifetime gifts is extremely generous, which is why interest in IHT has increased ahead of the Budget. A point to consider when making lifetime gifts is how they may affect the remainder of your estate. Any gift will reduce your available nil rate band if you do not survive for the following seven years, so your remaining estate may suffer more tax than you might expect.


Hilary has an estate of £600,000 and all of her nil rate band available. She gives her niece Ann £300,000, and in her will leaves her residual estate to her nephew, Andrew. Four years later, Hilary dies:

  • Ann has no other allowances to offset against the £300,000 gift, but is covered fully by Hilary’s nil rate band (which by 2022 is assumed to be £340,000).
  • Andrew’s legacy has only the remaining £40,000 of nil rate band to offset against it. There is therefore an IHT bill of £104,000 on the rest of the estate, leaving Andrew with a net £196,000.


    A simple way to address this problem is to arrange a seven-year term assurance to cover the extra tax on early death. For lifetime gifts that come to more than the available nil rate band, special ‘inter vivos’ cover can be set up to match the sliding scale of tax liability.

    Alternative inheritance taxes

    The Resolution Foundation Intergenerational Commission has suggested introducing a ‘lifetime receipts tax’. This tax would replace IHT and would be payable on any gifts or inheritance that an individual receives in excess of a ‘lifetime receipts allowance’ of £125,000 (rising with inflation).

    If you are contemplating pre-Budget gifts, make sure you ask us about your liabilities.

    The Financial Conduct Authority does not regulate tax advice.

    Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances.

    Tax laws can change.

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