HMRC warning to people who have gifted loved ones | European Markets

Britons who’ve gifted money to members of the family up to now seven years have been warned they might face an inheritance tax charge.

The tax workplace is on observe for a report yr, with inheritance tax receipts hitting £6.3 billion within the eight months from April to December 2024.

This marks a £0.6 billion increase in comparison with the identical period the yr earlier than, placing receipts on observe to beat HM Income and Customs (HMRC) report £7.5 billion.

Jonathan Halberda, specialist financial adviser at Wesleyan Monetary Companies, mentioned: “Provided that the inheritance tax threshold has been frozen till 2030, it’s virtually inevitable that IHT receipts will proceed to rise each month.”

Under current inheritance tax (IHT) rules, estates valued above £325,000 are typically taxed at 40%. This is referred to as the “nil-rate” threshold, and it has been frozen since 2009 despite soaring house prices and inflation.

During her maiden Budget last autumn, Chancellor Rachel Reeves announced an extension to the freeze on IHT thresholds for two more years until 2030.

One way to reduce the tax burden is to gift your wealth. However, there are strict guidelines, and timing is important.

Mr Halberda said: “In general, every year you are allowed to give gifts of any value to a spouse or partner, or gifts of up to £3,000 to anyone else.”

Small monetary gifts can also be given to any number of people in a single year, provided each gift does not exceed £250.

Mr Halberda continued: “You can also make regular payments out of your income, which can help stop the value of your estate exceeding the £325,000 tax-free allowance.”

However, he warned: “But there are limits. Gifts given less than seven years before you die can be taxed, depending on the gift’s value and your relationship to the recipient.”

If you survive more than seven years from the point the gift is given, the recipient should not be liable for inheritance tax unless the gift is part of a trust.

How much inheritance tax is charged on gifts?

If you die within seven years of giving a gift and there’s inheritance tax to pay on it, the amount of tax due after your death depends on when you gave it.

A statement on the Government website reads: “Items given within the three years earlier than your death are taxed at 40%. Items given three to seven years earlier than your death are taxed on a sliding scale referred to as ‘taper relief’.”

However, it noted: “Taper reduction solely applies if the overall worth of presents made within the seven years earlier than you die is over the £325,000 tax-free threshold.”

If taper reduction applies, the reward could be taxed on the following charges:

• If the individual dies within three years of giving the reward – 40 %
• If the individual dies within three to 4 years – 32 %
• If the individual dies within 4 to 5 years – 24 %
• If the individual dies within 5 to 6 years – 16 %
• If the individual dies within six to seven years – 8 %
• If the individual dies after more than seven years – 0 %.