Families trying to help loved ones with cash gifts are being dragged into the inheritance tax net due to complex red tape rules.

As a result, new figures release by the HMRC reveal the amount of IHT paid on cash gifts has surged over 153% in a decade.

A Freedom of Information request by financial advisers Continuum shows the taxman collected ￡256 million in IHT on gifts in 2020-21 – up from just ￡101 million in 2011-12.

The number of estates paying the levy on gifts has also ballooned by more than 120%, climbing from 590 to 1,300 over the same period.

Even the average IHT bill on gifts has risen sharply. Estates paying IHT on gifts handed over ￡171,186 on average in 2011-12, rising to ￡196,923 by 2020-21.

Advisers warn the spike shows families are being tripped up by complex rules – particularly the seven-year rule that means larger gifts may be taxed if the donor dies within seven years – and by lesser-known allowances.

While many understand the ￡3,000 annual exemption and the ability to give wedding gifts of ￡5,000 for parents or ￡2,500 for grandparents, far fewer know they can make unlimited gifts out of excess income, with no seven-year rule at all.

But the rules are strict. Gifts must be from income, not capital, and HMRC will check whether the donor had enough income left to maintain their normal lifestyle.

Ben Alcock, Chartered Financial Planner at Continuum, said: “The cost of living crisis continues to hit many clients’ families hard, and many of them may be looking to make large gifts to their loved ones in order to help. However, financial advisers need to make sure that their clients are aware of the potential tax ramifications that making larger gifts can bring.

“Giving money away while you are still alive could reduce the amount in your estate, but the taxman is wise to this choice. Your clients need to be careful or they could end up making a large financial gift to the taxman.

“IHT is complicated, you should not assume that your clients know the rules. Helping them through the maze of regulations will not only help minimize the tax burden, but can also be a good way to prove your value to your client and their loved ones.”**

To claim the “gifts out of income” exemption, families must keep meticulous records – covering income, spending, and details of the gifts. Executors must later present this to HMRC.

Tax Year	Estates Paying IHT on Gifts	IHT Paid (£m)
Dec-11	590	101
2012-13	720	105
2013-14	730	100
2014-15	810	136
2015-16	870	135
2016-17	920	156
2017-18	990	197
2018-19	970	201
2019-20	1080	244
2020-21	1300	256

Families trying to help loved ones with cash gifts are being dragged into the inheritance tax net due to complex red tape rules.

As a result, new figures release by the HMRC reveal the amount of IHT paid on cash gifts has surged over 153% in a decade.

A Freedom of Information request by financial advisers Continuum shows the taxman collected ￡256 million in IHT on gifts in 2020-21 – up from just ￡101 million in 2011-12.

The number of estates paying the levy on gifts has also ballooned by more than 120%, climbing from 590 to 1,300 over the same period.

Even the average IHT bill on gifts has risen sharply. Estates paying IHT on gifts handed over ￡171,186 on average in 2011-12, rising to ￡196,923 by 2020-21.

Advisers warn the spike shows families are being tripped up by complex rules – particularly the seven-year rule that means larger gifts may be taxed if the donor dies within seven years – and by lesser-known allowances.

While many understand the ￡3,000 annual exemption and the ability to give wedding gifts of ￡5,000 for parents or ￡2,500 for grandparents, far fewer know they can make unlimited gifts out of excess income, with no seven-year rule at all.

But the rules are strict. Gifts must be from income, not capital, and HMRC will check whether the donor had enough income left to maintain their normal lifestyle.

Ben Alcock, Chartered Financial Planner at Continuum, said: “The cost of living crisis continues to hit many clients’ families hard, and many of them may be looking to make large gifts to their loved ones in order to help. However, financial advisers need to make sure that their clients are aware of the potential tax ramifications that making larger gifts can bring.

“Giving money away while you are still alive could reduce the amount in your estate, but the taxman is wise to this choice. Your clients need to be careful or they could end up making a large financial gift to the taxman.

“IHT is complicated, you should not assume that your clients know the rules. Helping them through the maze of regulations will not only help minimize the tax burden, but can also be a good way to prove your value to your client and their loved ones.”**

To claim the “gifts out of income” exemption, families must keep meticulous records – covering income, spending, and details of the gifts. Executors must later present this to HMRC.

Tax Year	Estates Paying IHT on Gifts	IHT Paid (£m)
Dec-11	590	101
2012-13	720	105
2013-14	730	100
2014-15	810	136
2015-16	870	135
2016-17	920	156
2017-18	990	197
2018-19	970	201
2019-20	1080	244
2020-21	1300	256