RICH FAMILIES ARE GIFTING MORE GENEROUSLY AND EARLIER IN LIFE TO AVOID INHERITANCE TAX ON PENSIONS

Wealthy families are giving away more money earlier in life to avoid getting slapped with inheritance tax on pensions from spring 2027, a new survey reveals.

Nearly two thirds of affluent people with a personal income of more than £100,000, assets to invest of £500,000-plus, or a house valued more than £1million, are aware of and concerned about the pending changes.

And some 30 per cent are already changing their behaviour when it comes to gifting, which aside from spending your money is one of the easiest and most popular ways to reduce an inheritance tax bill.

Among those deciding to be more generous, 47 per cent are gifting more often, 44 per cent are gifting earlier, 35 per cent are gifting larger amounts, and 7 per cent are gifting to a wider group of people, according to the survey by RBC Brewin Dolphin.

It also found nearly half are not making gifts for a specific purpose, but among the rest most are funding house deposits, followed by offering day-to-day living support, shared experiences with the recipient, and school or university fees.

The Government plans to levy inheritance tax on pensions, just as it does already on property, investments, savings and other assets, from April 2027 onward.

Inheritance tax is levied at 40 per cent on estates above a certain size, but you need to be worth at least £325,000 if you are single, or £650,000 jointly if you are married, before becoming liable for death duties.

If you are passing on your home to direct descendants, the thresholds rise to £500,000 and £1million - check our guide to inheritance tax including more on the key thresholds here.

How giving away your money can reduce an IHT bill

You can gift £3,000 a year, plus make unlimited small gifts of £250, free from inheritance tax.

Married people and those in civil partnerships can give each other any sum they like free of tax, provided their partner lives in the UK.

Wedding gifts are also exempt, although the amount depends on how close you are to the bride or groom. The limits are up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.

One less well-known type of unfettered gifting is to contribute to the living costs of someone else - younger or older relatives, for example - but only if you can prove it's coming out of spare income.

Such gifts must be made out of surplus funds, which means your beneficiaries may have to show HMRC your old bank statements to prove you did not need to spend that money on anything else.

Beyond this, you can hand unlimited sums to other people if you want, but they will fall under the so-called seven-year rule.

Officially, these are called 'potentially exempt transfer' gifts, because if you survive seven years the money automatically becomes free of inheritance tax.

If you die before the seven years are up, inheritance tax is levied on a sliding scale - starting at the full whack of 40 per cent if it's within the first three years.

Check the Government rules on inheritance tax and gifts, and see the table below. This is Money has a guide to inheritance tax and gifts here.

How the seven-year rule works: Years between gift and death

Less than 3 years - 40 per cent

Three to four years - 32 per cent

Four to five years - 24 per cent

Five to six years - 16 per cent

Six to seven years - 8 per cent

Seven or more years - nil

Michelle Holgate, a director and wealth manager at RBC Brewin Dolphin, says: 'The changes coming in April 2027 will significantly reshape how pensions are treated in estate planning.

'More people are going to find themselves caught in the inheritance tax net for the first time – and maybe without realising it.

'You should therefore start planning well ahead of time with early and open conversations with your families.'

She says open discussions can be uncomfortable, but an honest conversation can help you understand where passing on wealth through specific gifts will have the most impact.

It can also help to manage family members' expectations around what they will receive when, and the implications for their own goals and financial planning, she adds.

Holgate goes on: 'As well as physical gifts and contributions, there is a clear desire to gift meaningful experiences and lasting family memories – whether that be the big trip you have always dreamed of or a ‘bucket list’ experience that you can do together with loved ones.'

2026-07-08T12:05:27Z