Grieving families in the United Kingdom paid a record £315 million in tax in a single year on gifts their loved ones had made to them shortly before dying, according to newly released data.
Almost 1,400 families paid an average of £226,000 each in death duties on so-called failed gifts in the 2023-24 tax year, the latest figures available show.
How the tax works
Under inheritance tax rules, any estate worth more than £325,000, or £500,000 if a main home is left to a direct descendant, is charged a 40 per cent tax bill. People can make gifts during their lifetime to reduce the value of their estate, but if they die within seven years of making the gift, it still counts towards the total. The tax on such gifts is levied on a sliding scale depending on how long before death the gift was made.
Sean McCann, of financial firm NFU Mutual, which obtained the data through a Freedom of Information request, said leaving gifts too late can be a serious and costly mistake.
A costly example
McCann gave an example to illustrate how the rules can catch families out: if someone gifts £400,000 and then dies, the first £325,000 is tax-free, but the remaining £75,000 is liable for inheritance tax.
The scale of the problem extends well beyond a single year. Some 5,080 estates over the past four years were forced to pay almost £1.1 billion in total in tax on failed gifts.
The true cost is likely higher
NFU Mutual said the real figure paid in inheritance tax as a result of failed gifts is likely to be even higher than the recorded totals, because the value of these gifts also eats into a family's tax-free allowance, pushing more of the wider estate into the taxable bracket.
Inheritance tax has become an increasingly prominent issue for UK households as rising property and asset values push more estates over the £325,000 threshold. Financial advisers routinely urge people to plan gifts well in advance of the seven-year cut-off point in order to reduce their families' tax exposure.
