HMRC warning for people who've gifted loved ones money in past seven years

UK households who've gifted money to loved ones in the past seven years have been warned it could potentially fall under inheritance tax. HMRC has released figures showing inheritance tax receipts have reached £5 billion in the seven months from April to October 2024.

Alex Davies, CEO and Founder of Wealth Club, said: "Inheritance tax was already an absolute cash cow for the government. The extreme changes announced in last month’s Budget, which badly affect farmers, business owners, pension policyholders and investors, mean these figures are only going to increase over the coming years.

"We believe all the changes to inheritance tax made in the Budget are extremely short-sighted. Firstly, the tax burden is already at its highest in 70 years and growth is very low. More tax is likely to stifle growth further. Secondly these changes have given those affected no time to plan.

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"It’s very much a case of "one day, that’s your money, the next day, it’s not"; a sentiment which is hardly going to encourage people to invest for the future whether that’s in their own business or in a savings vehicle such as a pension.

"That said you can only base your decisions on the facts as they are now and seemingly there are still ways available to reduce the inheritance tax paid by your estate, although many of them do require time and more risk."

Handing out money is one way to avoid inheritance tax. To ensure that it’s tax-free, it’s important to plan when to make that gift. Simply put, so long as you live for more than seven years after you make this gift, your children or family won’t have to pay Inheritance Tax on your gift when you die.

However, any income or gains made from this gift could have tax implications for the beneficiary, for example, Capital Gains Tax. But if you don’t live more than seven years after you’ve made the gift, they might have to pay Inheritance Tax.

When the gift is first made, it’s called a Potentially Exempt Transfer as, assuming you live for a further seven years, there won’t be any IHT due on it. If you die within seven years, it’s called a Chargeable Transfer.