Do I need to declare gifts made before death?

One of the most common areas of uncertainty when dealing with an estate is how lifetime gifts should be treated for inheritance tax purposes.

For solicitors managing probate matters, this is often where complexity starts to creep in, particularly where records are incomplete or the position is not immediately clear.

The basic rule

As a starting point, gifts made within seven years of death may need to be taken into account when calculating UK inheritance tax.

These are commonly referred to as potentially exempt transfers (PETs). Where the donor survives seven years, the gift typically falls outside the inheritance tax net. Where they do not, the position needs to be reviewed as part of the estate.

Practical challenges

In practice, the difficulty is rarely the rule itself, it is establishing the facts.

Common issues include:

• incomplete or informal records 
• uncertainty around dates and amounts 
• confusion between gifts and regular expenditure 
• lack of visibility where multiple family members are involved 

This is often where additional time and judgement are required.

What needs to be reported in practice (new section)

From an inheritance tax perspective, the key issue is not just whether gifts were made, but whether they need to be disclosed as part of the estate.

This will typically involve:

• identifying gifts made within the seven years prior to death
• considering whether any exemptions may apply
• ensuring the information is reflected consistently within the IHT400

Even where no additional tax ultimately arises, the reporting position still needs to be considered carefully.

Taper relief  – A brief reminder

Where gifts are made more than three years before death, taper relief may reduce the inheritance tax payable. However, this does not remove the need to report the gifts, it simply affects how tax is calculated.

For solicitors

From a practical perspective, it is worth identifying early:

• whether gifts are likely to be relevant 
• whether records exist 
• whether further input may be required 

Leaving this too late is a common cause of delay and can result in the inheritance tax position needing to be revisited at a later stage.

Conclusion

Lifetime gifts are a key part of inheritance tax and often one of the more time-consuming areas to deal with properly. In many cases, what appears to be a straightforward estate can become more involved once the gifting position is properly understood.

Final Thoughts

If you have a matter where the gifting position is unclear or requires review, we are happy to assist.

We regularly support solicitors in working through these issues in a structured and practical way.