HMRC has recouped £336 million from 2,500 households over the past five years due to gifts that breached inheritance tax (IHT) rules, according to data from the Labour government. The tax receipts stem from assets that were not fully given away, as experts confirm.
Reservation of Benefit: 2,500 Gifts Worth £840m
Between 2021 and 2026, 2,500 gifts valued at a total of £840 million were deemed to have a “reservation of benefit,” meaning the giver retained some use of the asset after gifting it. These gifts, averaging £338,840 each, were therefore not exempt from IHT. Under HMRC rules, Inheritance Tax may be payable on some gifts given before death.
Seven-Year Rule and Exemptions
Gifts made less than seven years before death may be taxed, depending on the recipient, their relationship to the giver, the gift’s value, and when it was given. No IHT is normally due if the estate is below the £325,000 threshold, or if everything above that threshold is left to a spouse, civil partner, charity, or community amateur sports club.
The giver must not have a “reservation of benefit” – for example, living in a home after transferring it to children or using a holiday home given away. This rule is often misunderstood.
Expert Commentary on Common Misconceptions
Nimesh Shah of accountancy firm Blick Rothenberg said: “The most common situation for estate executors will be when the deceased has given away their home and continued to live in it. There is still wide misconception that someone can gift their home (say to their children) and this is effective for inheritance tax planning.”
Madeleine Beresford of law firm TWM added: “What is often misunderstood is that this continues beyond the seven-year period after the gift, and the gift can fall back into the taxable estate even decades later if people don’t keep up with rent payments and rent reviews.”
HMRC Response
An HMRC spokesman said: “The vast majority of people pay the correct inheritance tax. Investigations are only opened into cases where there’s evidence the right amount of tax has not been paid.”
