Families hit with big bills after believing gifts would not be taxed

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Almost 2,000 people who thought they’d reduced the values of their estates by making gifts have seen an inheritance tax break stripped away. 

Inheritance tax is charged at 40% on individual estates worth more than £325,000, and this can double for married couples.

Other allowances and exemptions are available to increase this threshold or taper the inheritance tax rate down from 40%.

One such relief is the seven-year rule, which sees people give away assets to reduce the value of their estates and ensure more wealth is passed on.

But a Freedom of Information request from the Telegraph found that since 2016, 1,830 gifts worth £624 million have been deemed taxable at 40%.

Most of these ‘gifts gone wrong’ related to property, 13% were cash gifts, while shares and securities accounted for 8%. The rest were classed as “other assets”.

If HMRC discovers an individual continues to benefit from an asset they’d given away, it’s known as a ‘gift with reservation of benefit’.

The best example is where someone continues to live in, and therefore benefit from, a property they’d gifted to a descendant.

When this happens and HMRC finds out, no tax break applies and the gift’s value forms part of the gift-giver’s estate.

There are other options for giving some of your property or money away to reduce the value of your estate.

Speak to us about inheritance tax.