Giving assets away during your lifetime is often presented as a simple way to reduce Inheritance Tax, but in practice it requires careful planning.
Many families make gifts believing they are immediately outside their estate. In reality, most lifetime gifts fall under the seven-year rule, meaning their tax treatment depends on timing, value, and what happens afterwards.
One of the most common misunderstandings is taper relief. While tax may reduce if death occurs after three years, the relief only applies to the tax due — not the value of the gift itself. This can lead to unpleasant surprises for beneficiaries.
Gifting can also trigger Capital Gains Tax, particularly when property, shares, or investment assets are involved. Even when no money changes hands, HMRC may still consider a disposal to have taken place.
Another risk is loss of control. Once assets are gifted, they belong to someone else. If circumstances change — such as relationship breakdowns, financial difficulties, or care needs — the decision may be difficult or impossible to reverse.
Effective gifting strategies balance tax efficiency with flexibility and protection. This often involves considering alternative structures, timing, and how gifts interact with the rest of the estate plan.
Gifting can be powerful, but only when it forms part of a wider, considered approach rather than a standalone decision.