Gifting at Christmas: avoid the mistakes!

One of the most common pitfalls?  Gifts with Reservation of Benefit.  These occur when someone gives away an asset but continues to benefit from it, for example, gifting a home to a child but still living there rent-free.  HMRC doesn’t consider this a genuine gift, meaning the value remains in the estate for IHT purposes.  In 2023/2024, HMRC investigated 220 such cases, according to an analysis by TWM Solicitors^[1].

Other errors include failing to survive the seven-year rule for lifetime gifts, overlooking annual exemptions, or misunderstanding the rules around charitable donations.  Charitable gifting can be a powerful way to reduce IHT.  Gifts to UK charities are exempt, and leaving 10% of your estate to charity can cut your IHT rate from 40% to 36%, however, these benefits only apply if your Will is drafted correctly.

This Christmas, generosity should bring joy, not tax headaches.  Before making significant gifts, seek professional advice to ensure they’re properly structured and documented.  A well-planned approach can help you support loved ones and causes you care about, while keeping HMRC at bay.

Christmas Gifting Checklist

• Use your annual exemption (£3,000 per tax year)
• Keep gifts small and regular where possible
• Maintain clear records of your gifting
• Avoid Gifts with Reservation of Benefit (don’t keep using what you’ve given away)
• Consider charitable donations for IHT relief
• Review your Will and estate plan before gifting
• Seek professional advice for large or complex gifts

Make this Christmas count for your family and your future.  Discover more in our article: ‘Is the season for giving – and saving on inheritance tax’

[1] Beware inheritance tax gifting rules – 220 families left with shock bills after error | MoneyWeek