Gifting in the dark: Almost half of people who give money blind to potential IHT consequences

Laura Suter
17 May 2019

•         Just 45% of people gifting money knew about inheritance tax rules
•         7% of people gave gifts worth £20,000 or more 
•         43% gifted money for a special occasion
•         The average person gifted £4,000 in the past two years

Laura Suter, personal finance analyst at investment platform AJ Bell, comments on HMRC research into how people are giving away their wealth:

“It’s not surprising that people who are older and wealthier are more likely to have handed out gifts to friends or family in the past year, but it might surprise some that 12% of the gifts handed out by those aged 70 or more were worth £20,000 or more. Those who are older and gifting money need to make sure they don’t fall foul of inheritance tax rules, which could leave those they are handing money to with a tax bill if the gifter dies within seven years. 

“What’s particularly alarming is that less than half of people questioned were aware of inheritance tax gifting rules, saying it didn’t drive their decision to hand over money, and only a quarter appeared to actually understand how the rules work. The Government is already focused on simplifying the complicated web of IHT rules, with the Office for Tax Simplification having already announced some proposed changes and more expected to come – this shows that change can’t come soon enough.

“People gifting money with no awareness of the inheritance tax rules are leaving their heirs a potential minefield to navigate should they die, but a lack of understanding around gifting rules also means many could be missing out on passing on potentially lucrative gifts tax-free.

“A worrying trend among lower earners is that people are often borrowing money and taking on debt in order to gift money to other people. The second most common reason to gift money was to help with living expenses, followed by clearing debts, showing that many on lower incomes may be in the perverse situation of borrowing money in order to help others repay their own debt.

“Those with children are also more likely to have handed out cash in recent years, and more than a quarter of the gifts were to 18 to 24 year olds. In many cases this is likely to help children on the housing ladder, as the reliance on the Bank of Mum and Dad has increased dramatically in recent years, but it is also to pay for education, weddings and to buy a car. The figures show that these handouts can reach sizable sums, with 7% of people handing out gifts worth £20,000 or more in the past two years.

“However, money isn’t just flowing from parents to children. The figures show the problems the ‘squeezed middle’ generation face, helping with their children and their family’s costs of living, with 15% of people gifting money to their parents – often to pay towards care. Another 14% gave to siblings, while the same number are generously giving to their friends. 

“Never has it been truer that charity starts at home, as people are shunning giving to charities in favour of giving to their loved ones, with just 12% saying any of their three largest gifts in the past two years were to an organisation, compared to 80% who gave to people.”

Laura Suter
Personal Finance Analyst
Laura Suter is personal finance analyst at AJ Bell. She is a multi-award winning former financial journalist, having specialised in investments. Laura joined AJ Bell from the Daily Telegraph, where she was investment editor. She has previously worked for adviser publications Money Marketing and Money Management, and has worked for an investment publication in New York. She has a degree in Journalism Studies from University of Sheffield.
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