Grieving families were compelled to pay a record £315 million in inheritance tax (IHT) within a single year on gifts made by their loved ones in the period leading up to their deaths. This figure represents the latest available data for the 2023-24 tax year.
Approximately 1,400 families each paid an average of £226,000 in what are termed 'failed gifts.' These are assets transferred within seven years of a person's death that are then subject to IHT. The tax rate is 40%, applied to the value of the estate exceeding the £325,000 threshold, or £500,000 if a primary residence is passed to a direct descendant.
Sean McCann of financial firm NFU Mutual, which compiled the data through a Freedom of Information request, highlighted that delaying gift transfers can be a significant financial misstep. If an individual gifts a substantial sum, for instance, £400,000, and passes away within the seven-year window, the portion above the tax-free allowance becomes liable for inheritance tax. For example, £75,000 of a £400,000 gift could be taxed if the donor dies soon after the transfer and the estate value exceeds the threshold.
Over the past four years, a total of 5,080 estates incurred nearly £1.1 billion in IHT linked to such gifts. The actual financial impact is likely higher, as the value of these gifts can also reduce the tax-free allowance available to the estate.