The amount of inheritance tax paid on cash gifts has surged over 153% in a decade, with over 1,300 estates now paying the levy
Even the average IHT bill on gifts has seen a sharp rise(Image: coldsnowstorm via Getty Images)
Families attempting to help their loved ones with monetary gifts are being caught in the inheritance tax (IHT) web due to intricate bureaucratic regulations. New data released by HMRC shows a staggering 153% increase in IHT paid on cash gifts over the past decade.
A Freedom of Information request by financial advisers Continuum reveals that in 2020-21, the taxman raked in £256 million in IHT on gifts, a significant leap from the £101 million collected in 2011-12. The number of estates shelling out the levy on gifts has also skyrocketed by more than 120%, escalating from 590 to 1,300 during the same timeframe.
Even the average IHT bill on gifts has seen a sharp rise. In 2011-12, estates paying IHT on gifts forked out an average of £171,186, which surged to £196,923 by 2020-21. Advisers caution that this spike indicates families are stumbling over complex rules – especially the seven-year rule that taxes larger gifts if the donor passes away within seven years – and lesser-known allowances.
Families attempting to help their loved ones with monetary gifts are being caught in the inheritance tax (IHT) web(Image: LaylaBird via Getty Images)
While many are aware of the £3,000 annual exemption and the ability to present wedding gifts of £5,000 for parents or £2,500 for grandparents, far fewer realise they can make unlimited gifts out of surplus income, without any seven-year rule.
However, the rules are stringent. Gifts must come from income, not capital, and HMRC will scrutinise whether the donor had sufficient income remaining to sustain their usual lifestyle.
Ben Alcock, Chartered Financial Planner at Continuum, said: “The cost of living crisis continues to hit many clients’ families hard, and many of them Many may be considering generous gifts to their loved ones in these trying times. However, financial advisers must ensure their clients are clued up on the potential tax implications that larger gifts can entail.
“Giving money away while you’re still kicking could shrink your estate, but the taxman is no mug. Your clients need to tread carefully or they could end up handing a hefty financial gift to the taxman.
“IHT is a minefield, don’t presume your clients know the rules. Guiding them through this labyrinth of regulations will not only help lighten the tax load, but can also be a cracking way to demonstrate your worth to your client and their loved ones.”
To claim the “gifts out of income” exemption, families must keep scrupulous records – covering income, spending, and details of the gifts. Executors must later present this to HMRC.
Source: Freedom of Information request to HMRC by Continuum (data correct as of 17.11.25).