Inheritance Tax receipts just hit £8.5 billion! Here’s how structuring your gifts can help

If you’ve ever explored how to limit the future Inheritance Tax (IHT) on your estate, you will likely have looked at the role gifting can play.

Gifting can be one of the most efficient ways to pass assets between generations, but it has to be carefully managed to ensure it’s as effective as possible.

MoneyWeek reports that 2025/26 was a record year for IHT revenue. Receipts are likely to continue rising, with the nil-rate bands frozen until 2031 and IHT reforms coming into effect this year and next year. As such, gifting may play an increasingly important role in your estate planning.

So, read on to find out how to structure your gifting to ensure your strategy is as efficient as possible.

Gifting allowances can help you reduce Inheritance Tax on your estate

The main gifting allowance is the “annual gifting exemption”, which lets you give away up to £3,000 each tax year without it counting towards your estate for IHT purposes.

If you didn’t use your allowance in the previous year, you can carry it forward, meaning you can gift up to £6,000. Moreover, married couples and civil partners can combine their allowances.

Other gifting allowances include:

• Wedding and civil partnership gifts of up to £5,000 – The total amount you can give depends on your relationship to the recipient.

• Small gifts up to £250 – You can give as many small gifts as you want, provided the recipient hasn’t already benefited from another exemption.

• Regular gifts from income – You can give regular gifts from your income, provided they don’t affect your standard of living.

Anything given outside these exemptions is typically treated as a Potentially Exempt Transfer (PET).

PETs don’t incur tax immediately, and if you survive seven years after making the gift, it normally falls outside your estate. If you die within seven years, the gift may be liable for IHT, though taper relief may apply depending on how long you survived.

Certain gifts may be better suited to different goals

Gifting cash can be useful for supporting short-term goals and providing immediate financial help. But cash is also vulnerable to inflation over time, which may reduce its long-term value.

However, not all gifts come in the form of cash, and other assets may better serve the recipient’s long-term goals and could even be more efficient.

For instance, you can gift investments, which have the potential to grow over time and may be more suitable for longer-term planning, though their value can go down as well as up.

More complex assets, such as property, can involve additional tax and planning considerations, so it’s important to speak to us before choosing to make gifts such as these.

You may also want to consider gifting some of your pension income, as upcoming changes mean they are expected to form part of estates for IHT purposes from April 2027. This change will make pensions less tax-efficient than they have been historically, and gifting some of your income from them is one way to overcome this.

You can read more about what the changes to pensions and IHT could mean for you in our recent article on the topic.

Moreover, while many gifts are made outright, you can also use trusts as part of your gifting strategy. Trusts can offer greater protection and more control over how assets are managed and distributed.

Certain trusts can also allow you to retain benefits during your lifetime. For instance, a Discounted Gift Trust may provide you with regular payments while still helping reduce the long-term IHT liability on your estate.

However, trusts are complex and the tax treatment depends on the type of trust used and your individual circumstances. So, it’s important to speak to a financial planner before proceeding.

Choosing the right giver and timing can significantly improve the tax efficiency of a gift

If you’re gifting as a couple, choosing who makes a gift and when can improve the overall tax efficiency.

For instance, if one of you earns more than the other, they may be better suited to making regular gifts out of surplus income. Or if one partner is older or in poorer health, it may be more effective for the other partner to make larger gifts, given the importance of surviving seven years.

Timing is also important. Making gifts earlier increases the likelihood that they will fall outside your estate for IHT purposes. Moreover, using your annual gifting allowances each tax year can be more efficient than making larger transfers, but it has to be carefully planned.

As gifts can be liable for Capital Gains Tax (CGT), you can also make use of the CGT Annual Exempt Amount by spreading gifts across tax years.

Gifting involves risks that need to be carefully managed

Gifting can be an effective way to reduce a potential IHT liability, but it’s not without risks.

Common pitfalls around gifting include:

• Gift with reservation of benefit – If you give away an asset but continue to benefit from it, it may still be considered part of your estate for IHT purposes. For example, if you gift your property to a child but continue to live in it without paying full market rent, the property may still be included in your estate.

• Unexpected CGT charges – Gifting assets such as shares or property may be liable for CGT, even if no money is received, unless the gift is made to a spouse or civil partner.

• Not keeping records – This is especially relevant for gifts made out of surplus income, as you need clear evidence to demonstrate that you made regular payments that did not affect your standard of living.

• Losing control of assets – Most gifts are irrevocable, so it’s important to ensure that your own financial needs are fully secure before making them.

By understanding and planning for these risks, you can structure your gifting to support the long-term financial security of you and your loved ones.

Get in touch

We can help you build gifting into your financial plan and ensure your gifts are structured to be as efficient and effective as possible.

To speak to a financial planner, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note          

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.        

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.