There has been a rise in the number of families receiving inheritance tax (IHT) bills after death on gifts made during the deceased’s lifetime, leading to Evelyn Partners issuing a warning to those who may be set to receive financial gifts from relatives in the future.

The firm said that large gifts can be made at any time but if the giver dies within seven years of the gift, the gift itself could be taxable or be included in the estate for the calculation of IHT.

The number of estates that paid IHT on gifts made less than seven years before death more than doubled from 590 in 2011/12 to 1,300 in 2020/21, according to HM Revenue and Customs (HMRC) data obtained by the firm via a freedom of information request.

Meanwhile, the total sum of IHT paid on gifts also more than doubled from £101m to £256m in the same period, an increase of 153% in monetary terms and 119% in real terms.

Evelyn Partners also stated that this suggests the average tax charge payable by beneficiaries on lifetime gifts was £171,186 in 2011/12, and £196,923 in 2020/21.

Head of estate planning at Evelyn Partners, Ian Dyall, said: "This data suggests that some pretty significant shock tax bills are being delivered to people. Those who receive generous gifts from older relatives need to be aware that they could be liable for a big tax charge if that relative dies within seven years of making the gift.

"These figures show that a growing number of recipients will have had a potentially unexpected IHT bill to pay, when the donor dies, on a gift that they could have received several years ago."

While HMRC statistics show that 4.4% of estates paid IHT in 2021/22, the growth in wealth among older individuals means this number is set to rise to over 7% by 2032/33. The number of people affected by IHT will be still larger, with 12% of people having an IHT bill, either due to their death or their partner’s death, by 2032/33.

Dyall added: "What we could be seeing here is more families over the years making large lifetime gifts because they want to support their children or grandchildren. Among some families there could be a growing awareness that such gifts could reduce the size of their estate so it’s a conscious tactic - but the gifter just doesn’t live long enough for the estate to reap the full tax benefit.

"The data could alternatively show among other families a lack of awareness or a misunderstanding of the rules. HMRC’s own research has suggested that only 45% of gifters were aware of IHT rules or exemptions when they gave their largest gift, and only a quarter displayed a working knowledge of IHT rules.

"It’s worth pointing out that this data does not even include all estates that might have had to pay IHT tax on lifetime gifts because for plenty of families the cumulative total of gifts made in the seven years before death doesn’t itself exhaust the nil-rate band. These gifts, where the estate rather than the recipient becomes liable for the tax, are not counted in these figures."

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