Over £2bn in cash gifts given to reduce Inheritance Tax – 40% increase in last five years

Date: 29 Jul 2024

Karen Jones

The value of cash gifts given away by people in the UK rose to £2.1billion in 2020/21, marking a 40% increase from £1.5 billion in 2016/17, according to data from TWM Solicitors, a leading private wealth and family law firm.

This increase reflects the growing wish of families to reduce their heirs’ Inheritance Tax (IHT) bills. The value of cash gifts has risen significantly in the past five years. Since 2016, the value of cash gifts has risen at an average of 8% a year (see graph below).

In the 2023-24 tax year alone, the Government raised £7.6 billion* through IHT. This figure is expected to double by 2032.** It appears that more people are gifting money to their relatives during their lifetimes at least partly to reduce their IHT exposure.

Provided the individual doesn’t pass away within seven years, the gift is exempt from IHT.

More families will be finding themselves caught in the IHT net, with the IHT threshold having been frozen at £325,000 since April 2008 despite household wealth increasing sharply. If the threshold had kept pace with inflation, it would now be £589,000.

The median household in England now holds assets worth £302,500, up 15% in 2020 from £262,400 in 2016. ***

“Giving cash gifts to family members in your lifetime can be an effective and simple strategy,” says Caroline Foulger, Partner and Head of Private Client at TWM Solicitors. “If they are timed well, the gifts allow individuals to distribute more wealth to their loved ones and reduce their IHT burden.”

“Individuals should consider gifting money to their loved ones earlier in life. We often find that the kind of affluent individual that is going to be caught by IHT, out of understandable caution, keeps far too much money in their estate, retaining far more money than they could reasonably need. That leaves their heirs with a far bigger IHT bill.”

TWM’s advice on navigating Inheritance Tax

Caroline Foulger offers some key concerns for families to be aware of when utilising cash gifts:

“One of the most important things is that families don’t make decisions hastily about gifting without carefully planning them through. For example, we saw a sudden rise in interest in gifting ahead of the general election.”

“Because of a concern amongst some that IHT might increase in some way with a Labour government, some individuals looked to make large lump sum gifts. Before you do that, you need to prepare a proper budget based on different scenarios.”

“Families need to ensure that any gifts they give do not significantly impact their standard of living.”

“It’s important families consider their tax planning collectively,” Caroline Foulger adds. Even within a family unit, views on taxation can vary wildly.”

Fears over inheritance tax driving increase in cash gifts

*Source: HMRC

**Institute for Fiscal Studies “Reforming Inheritance Tax” Report 2023 *** ONS Wealth and Assets Survey 2018-2020 and 2014-2016

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