How Lifetime Gifting Can Reduce Your Family’s Inheritance Tax Burden

When it comes to passing wealth on to the next generation, few things feel as rewarding as knowing you’ve taken steps to protect your family’s future. Lifetime gifting is one of the most effective ways to reduce the potential inheritance tax (IHT) burden, while also giving you the chance to support your family when it matters most. But it’s not always straightforward. Between the seven-year rule and the nuances of “gifts with reservation,” it’s easy to feel uncertain about the best approach.

Many people worry about how inheritance tax will affect their family, but often they aren’t aware of how making regular gifts can help your family today whilst reducing inheritance tax bills tomorrow. But to be effective it’s essential to follow the rules, and like many aspects of tax planning, good advice could pay for itself many times over. This guide explains how thoughtful gifting can help protect your family’s financial future while keeping control over your wealth.

Why Lifetime Gifting Matters

Inheritance tax can reduce the estate you leave behind, sometimes significantly. Lifetime gifting allows you to:

• Reduce your taxable estate – Gifts made during your lifetime may fall outside your estate for IHT purposes if structured correctly.
• Support loved ones sooner – Rather than waiting until after your passing, you can provide help when it’s most needed.
• Give in line with your values – Whether funding education, helping a family member with a first home, or contributing to health and wellbeing, your gifts can reflect what matters most to you.

Lifetime gifting isn’t just about minimising tax—it’s about giving your family certainty and security.

Key Rules to Know

The Seven-Year Rule

• Gifts are generally exempt from IHT if you survive seven years after making them.
• If death occurs within seven years, the gift may be partially subject to IHT, with taper relief reducing the tax on gifts made between three and seven years prior.
• Careful timing can make a meaningful difference to the impact of your gifts.

Gifts With Reservation of Benefit

• These occur when you give an asset but continue to benefit from it—for example, transferring property but still living in it rent-free.
• HMRC may consider these assets part of your estate for IHT purposes.

Planning around these rules ensures that your gifts achieve the intended effect without unintended tax consequences.

Types of Lifetime Gifts

There are several ways to make tax-efficient gifts while keeping them meaningful:

1. Annual Exemption
   • You can gift up to £3,000 per year without impacting your estate for IHT.
   • This allowance can be carried forward for one year if unused.
2. Small Gifts Exemption
   • You can make small gifts up to £250 per recipient each tax year.
3. Gifts to Spouses or Civil Partners
   • Transfers between spouses or civil partners are generally exempt from IHT.
4. Regular Gifts Out of Income
   • Gifts from income (not capital) that do not affect your standard of living.
5. Larger Strategic Gifts
   • Transfers of property, shares, or lump sums, where professional advice on timing, documentation, and strategy is essential.

Making Gifting Meaningful

At Chesterton House, we focus on values-based gifting. That means:

• Supporting what matters most to your family.
• Keeping control and flexibility over your wealth.
• Providing certainty and confidence for your loved ones.

Practical Steps to Get Started

• Assess your estate – Understand your assets, liabilities, and potential IHT exposure.
• Identify priorities – Which family members or causes matter most?
• Plan your gifts – Take the seven-year rule and exemptions into account.
• Keep records – Document amounts, recipients, and dates.
• Coordinate with advisers – Work alongside solicitors and accountants to integrate gifting with trusts and other planning tools.
• Review regularly – Life changes and tax rules evolve; regular checks ensure alignment with your goals.

The Takeaway

Lifetime gifting is about more than tax – it’s about creating a values-aligned plan that benefits your family, protects your wealth, and gives you peace of mind. With careful planning:

• Reduce your estate’s IHT exposure.
• Provide for loved ones during your lifetime.
• Maintain flexibility and control over your finances.
• Ensure your gifts reflect your values and priorities.

At Chesterton House, we guide clients through the complexities of lifetime gifting, offering clarity, confidence, and tailored advice to protect the financial future of their families.

Ready to explore lifetime gifting?

Book a relaxed, no-obligation conversation with one of our Financial Planners to see how your wealth can work for your family today—and tomorrow.

 

---

 

FAQs: Lifetime Gifting & Inheritance Tax

What is lifetime gifting for inheritance tax purposes?

Lifetime gifting is giving money or assets to family members or others during your lifetime, with the aim of reducing your estate’s value and potential IHT liability.

How does the inheritance tax seven-year rule work?

If you survive seven years after making a gift, it generally falls outside your estate for IHT purposes. Gifts made within seven years may still be partially taxable, with taper relief reducing IHT on gifts made 3–7 years before death.

What are gifts with reservation of benefit?

These occur when you give away an asset but continue to benefit from it, such as transferring a property while still living there rent-free. HMRC may still treat it as part of your estate for IHT purposes.

How much can I gift tax-free each year?

• Annual exemption: Up to £3,000 per year, with a one-year carry-forward if unused.
• Small gifts: Up to £250 per recipient each tax year.
• Spouse or civil partner transfers: Usually exempt from IHT.

Can I give larger gifts and still reduce IHT?

Yes. Larger gifts of property, shares, or lump sums can reduce your estate’s taxable value, but proper planning, timing, and documentation are crucial.

Can I combine lifetime gifting with trusts or other estate planning tools to reduce my IHT?

Absolutely. Lifetime gifting can work alongside trusts, pensions, and other estate planning strategies to create a comprehensive, tax-efficient plan tailored to your family and values.

Will lifetime gifting affect my financial security?

Gifting should be structured to protect your ongoing lifestyle and financial needs. A values-based plan ensures gifts are meaningful but don’t compromise your security.

Can lifetime gifts be changed once made?

Once a gift is completed, you usually cannot take it back. That’s why planning and professional advice are essential to ensure gifts align with your intentions and IHT goals.

How can a Financial Planner help with gifting?

A Planner can help you:

• Identify which gifts make sense for your situation
• Structure gifts to maximise tax efficiency
• Coordinate with legal and tax advisers
• Ensure gifting aligns with your values and family goals

When should I start thinking about lifetime gifting?

The sooner you start, the more options you have. Early planning gives time for gifts to mature outside your estate, ensures clarity for your family, and provides peace of mind.