Hundreds of Families left with surprise IHT Bills

Hundreds of families left with surprise bills after failing to meet inheritance tax
gifting rules.

You want to be generous, who wouldn’t? The idea of gifting your house to the kids,
providing them with shares, or transferring a holiday home to loved ones so you are able
to see them enjoy it is a dream for most, but it can come with a nasty snag.
Unexpected inheritance tax bills were given to over 200 families last year according to
an HMRC report. There is an inheritance tax rule known as a “Gift with Reservation of
Benefit” that trips a lot of people up, as we’ve seen with the almost £61 million in
unexpected IHT bills sent out because of it.

So how does this happen, and how can you avoid it?

HMRC isn’t just looking at what you give away, it’s also looking at how you gave it away.
Often shortened to a term as “GROB” it means that if you give something away but are still
benefitting from it, in the eyes of HMRC you never gave it away at all.
To clarify even more if you give your house to your children but decide to still live in it
rent free ( and if you pay Rent it must be at the market rate and those receiving the income
must declare it) this is not considered a valid gift. Nor is gifting shares but still taking the
dividends or giving a car as a gift to a relative but still using it every weekend.
This often catches people out because it’s normal to want to get ahead of the inevitable
and get your affairs in order, but if you don’t completely relinquish control of an asset
you’ve gifted, HMRC adds it back into your estate after you’ve passed.
So, it isn’t even a matter of attempting to avoid IHT, most of the time it can be as simple
as thinking you’re doing the right thing by acting early, only for your relatives to be
punished for it later on down the road. Something everyone would be keen to avoid!

How can you gift the right way?

Here are some things to consider to help you avoid an unnecessary IHT bill and ensure
you are able to be as generous as you want.
Learn to let go – No, I’m not trying to be your therapist. It’s an unfortunate reality that
you will have to accept if you want to gift something substantial, you simply need to gift
it with no benefit going to you. Harsh but fair and gifting your home is not the way forward
as it can also ( in addition to the pitfalls above) also create a Capital Gains Tax for those you
have gifted it to.

Please contact me for further clarity and advice.

Consider Insurance – There is a type of insurance called “Gift Inter Vivos” which helps to
cover the IHT bill if you are to pass away within seven years of making a significant gift of
assets. By no means do you have to have it, but it is a good backup if it’s something you
are concerned about. It is a helpful policy to have if you distribute a large amount of
wealth before you pass away.
Get advice from an expert – It’s just logical to seek out the most experienced people to
gain the knowledge you need to help safeguard your estate. By retaining the services of
a professional estate planner, you can move forward with your gifting strategy safe in the
knowledge that your generosity won’t be punished with unnecessary IHT bills.
Some useful gifting tips
It’s not always about the big picture either, sometimes you can avoid future IHT bills by
doing small incremental things that build up over time, such as:

• Use your £3,000 annual gifting exemption to give funds over a longer period of
  time. This resets every year.
• You can gift up to £5,000 to a child getting married, tax free.
• Gift an amount from your surplus income. This is any amount that exceeds your
  regular spending each year.
• Give to charity. Giving 10% of your estate to charity lowers the overall rate and
  cuts your IHT from 40% to 36%.
  The future of IHT
  The thresholds for IHT are frozen and property prices keep going up. More and more
  people are drifting into IHT bill territory without even realising it. HMRC took an
  incredible £2.2 billion from IHT in the first 3 months of the 2025/26 tax year alone.
  From 2026 we’ll see certain reliefs for business and farm assets slashed, and pensions
  will be brought into IHT considerations from 2027. In order to move forward it’s
  important to plan ahead while also being aware of the gift with reservation of benefits
  rule.
  Working together to avoid painful and unexpected IHT bills
  Your heart might be in the right place, unfortunately HMRC doesn’t view things the same
  way. Being generous is one of the best things you can do, you shouldn’t be punished for
  it. By working together, we can create a smart gifting strategy that won’t leave your loved
  ones with any unexpected IHT bills to deal with.

By utilising all the tools at your disposal: gift planning, charitable giving, and
professional advice we can find a perfect balance between mitigating IHT and peace of
mind.