Surrey-based accountancy firm, TWP, has issued a warning to those seeking to minimise Inheritance Tax (IHT) liabilities by gifting or passing on wealth.

As the 2024 Autumn Budget approaches, tax on wealth looks set to be a priority, with IHT high on the list of potential tax rises – which could pull more estates into the orbit of paying IHT.

Stephen Nicholls, Business & Corporate Tax Director at TWP, said: “This Budget is certainly going to be an interesting one. We’ve heard a few snippets from the Government in recent weeks that suggest wealth is going to be a target for increased tax, so those with high-value estates are understandably on edge.

“The Government broadly has two options. It could either raise the rate of IHT from 40 per cent, or lower the threshold for paying it, whether that is the main rate or, for example, the residence nil rate band.

“Some asset holders are now looking towards ways of reducing the overall value of their estate upon their death – effectively reducing how much IHT is payable and leaving more of their estate for the benefit of loved ones.

“Gifting is a popular option for this, but proceed with caution.”

The firm particularly urged asset holders to remember the ‘seven-year rule’ – requiring gifts given less than seven years before the person’s death to be included in the value of their estate, depending on its value and who received it.

Tapered relief may apply during this time, but the asset would still be subject to some IHT.

This includes gifts of money, a house or land, stocks and shares or high-value assets such as antiques or jewellery above the £3,000 yearly gifting allowance.

Stephen continued: “We’ve seen a lot of those with substantial wealth concerned that IHT changes will subject their estates to more tax than ever before.

“However, gifting is only an appropriate solution in certain circumstances.

“For example, many people choose to gift assets to their spouse, not realising that any part of an estate left to a spouse, even if its value is above the £325,000 threshold, is free from IHT.

“Additionally, we see a lot of people who may actually be giving a ‘gift with reservation’, i.e. they continue to benefit from the gift. This is particularly common when a person passes on a home, for example to their children, but continues to live in it without paying rent. This is likely to be added to the total value of the estate.

“While gifting can be an excellent way of supporting loved ones and reducing IHT liabilities, it is highly dependent on a person’s lifespan, which often cannot be predicted.

“Ultimately, you can give a gift at any time and, depending on when you die, it may or may not be counted in the value of your estate. However, it’s important to remember that gifting is not necessarily an ironclad way of reducing your IHT liability and should be used alongside other strategies.”

Contact our team to discuss your estate and minimising your IHT liabilities.