UK households that have made financial gifts to family members in the past seven years could be hit with inheritance tax, a warning that comes as HMRC reports a surge in inheritance tax receipts to £5 billion from April to October 2024. Alex Davies, CEO and Founder of Wealth Club, commented: “Inheritance tax was already an absolute cash cow for the government. The extreme changes announced in last month’s Budget, which badly affect farmers, business owners, pension policyholders and investors, mean these figures are only going to increase over the coming years.”
He went on to say: “We believe all the changes to inheritance tax made in the Budget are extremely short-sighted. Firstly, the tax burden is already at its highest in 70 years and growth is very low. More tax is likely to stifle growth further. Secondly these changes have given those affected no time to plan.”
Davies further noted: “It’s very much a case of “one day, that’s your money, the next day, it’s not”; a sentiment which is hardly going to encourage people to invest for the future whether that’s in their own business or in a savings vehicle such as a pension.”
He concluded by saying: “That said you can only base your decisions on the facts as they are now and seemingly there are still ways available to reduce the inheritance tax paid by your estate, although many of them do require time and more risk.”
One method to avoid inheritance tax is through monetary gifts. The timing of the gift is crucial for it to be tax-free, as reported by Yorkshire Live, reports the Daily Star.
Essentially, if you survive for more than seven years after making the gift, your children or relatives won’t have to pay Inheritance Tax on your gift when you die. However, any income or gains from this gift could be subject to taxes for the recipient, such as Capital Gains Tax.
If you don’t survive for more than seven years after making the gift, they may have to pay Inheritance Tax. Initially, when the gift is made, it’s referred to as a Potentially Exempt Transfer because, assuming you live for another seven years, there won’t be any IHT due on it.
If you pass away within seven years, it’s termed a Chargeable Transfer.