Lifetime Gifts or Transfers – Are they always exempt from Inheritance Tax?

“Lifetime Gifts” are assets, property or money you give to someone during your lifetime. It is very popular in the UK. Some give away assets in order to reduce or avoid inheritance tax on their estate. Parents may give lifetime gifts to their children in order to help them financially or to help them climb the property ladder.

Many who give lifetime gifts are unaware of the rules of inheritance tax. They may assume that their gifts will not be considered as part of their estate and so, no tax will apply on them. However, we want you to know that certain gifts could become liable to inheritance tax.

There are basically two types of lifetime gifts.

Potentially Exempt Transfers

If you give a gift and survive 7 years after the giving the gift, it is exempt from inheritance tax. However, you cannot continue using the gift after giving it away.

If you die within 7 years of giving the gift, it becomes liable to inheritance tax. The tax on the gift varies depending on how many years you have survived after giving the gift.

To calculate the inheritance tax on a potentially exempt transfer, they take into account the value of the gift at the time when it was given, not at the time of the giver’s death.

Gifts with Reservation of Benefit

If you continue using a gift after giving it away, it is a gift with reservation of benefit. For example, you may give your house to someone but continue living in it rent-free. Such gifts will be considered as part of your estate and hence, tax will apply on them.

To calculate the inheritance tax on a gift with reservation of benefit, they take into account the value of the gift at the time of the giver’s death, not at the time when it was given.


  • At the time of death, the executor must speak with family and friends and check bank statements to get to know about any lifetime gifts given by the person. If he finds out about a gift given within the last 7 years or about a gift with reservation of benefit, he must notify the HMRC.
  • The beneficiaries must promptly inform the executor about any lifetime gifts they have received. If they fail to do so, they become liable not only to inheritance tax but also to a severe penalty imposed by the HMRC.
  • If you plan on giving a lifetime gift to someone, make a bank transfer or write a cheque so that there is a clear record. If you plan to gift an asset or property, make sure to have it in writing in order to avoid complications in the future.

The following lifetime gifts will always be exempt from inheritance tax.

  • Every year, gifts up to £3000 are exempt.
  • Any wedding or civil ceremony gifts are also exempt. The gifts, however, cannot be more than £1000 per person. If it’s for a grandchild, the gift can be up to £2500 and if it’s for your own child, it can be up to £5000.
  • You can also give unlimited gifts, each worth up to £250. However, you cannot give these gifts to someone who you’ve already given a gift under the previously mentioned exemptions.
  • Gifts to a spouse or civil partner are exempt if both partners are domiciled in the UK. If only one partner is domiciled in the UK, there are complicated tax rules that apply.
  • Gifts given to a charity are always exempt.

If you need any further guidance or advise on Inheritance tax, please do not hesitate to contact us.

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