Gifts, the Seven-Year Rule, and the Tax Traps Families Miss
Giving assets away during your lifetime can be effective for Inheritance Tax planning — but only if the rules are properly understood.
Gifting is often seen as a straightforward way to reduce Inheritance Tax (IHT). In reality, it comes with time limits, tax interactions, and loss-of-control risks that are frequently overlooked.
The Seven-Year Rule Explained
Most lifetime gifts are classed as Potentially Exempt Transfers. If you survive seven years, the value usually falls outside your estate. If you don’t, some or all of the gift may still be taxed.
Many people misunderstand taper relief and assume tax reduces automatically. In practice, the outcome depends on timing, value, and how much of your Nil Rate Band is already used.
When Gifting Creates Other Tax Problems
Gifting assets such as property, shares, or investments can trigger Capital Gains Tax — even where no money changes hands. This often catches families off guard.
Control Matters as Much as Tax
Giving assets away too early can mean losing control without achieving the intended tax benefit. Good planning balances tax efficiency with flexibility and protection.