HMRC have published a new research report ‘Lifetime Gifting: Reliefs, Exemptions, and Behaviours’ into taxpayer awareness of the inheritance tax (IHT) rules and how it influences the making of lifetime gifts.

The aim of the study, conducted by the National Centre for Social Research in collaboration with the Institute for Fiscal Studies, was to:

  • estimate the incidence of giving among the adult UK population
  • identify what people gift, who they gift to, and why they make those gifts
  • understand peoples’ awareness of IHT exemptions, how they influence gifting behaviours, and whether the use of exemptions varies by demographics.

The research, which excluded gifts between spouses and to minor children, showed that:

  • 12% of the general population surveyed (or they and their spouse/ civil partner) had given a single gift of £1,000 or more in the two years prior to the interview.
  • Those more likely to be gifters are:
    • The wealthier (assets above £500,000 and or income above £45,000)
    • Those over the age of 70
    • Married people
    • People with children
  • Most gifters give small amounts such as £1,000 per year. 92% of those interviewed gave one-off gifts, with 19% saying they made regular gifts,
  • 62% of gifts were made out of savings and 26% out of income.
  • Reasons for giving include paying living expenses and passing on assets, with people often citing more than one purpose for a gift.
  • Only 45% of gifters said that they had been aware of IHT rules or exemptions when they gave their largest gift, with just 8% of all gifters saying the rules had influenced those gifts.

Taxpayers were quizzed on their knowledge of the IHT rules and exemptions. Only 25% scored five or more on the quiz, gave a confidence score of six or more out of ten and could be classified as having a working knowledge of IHT rules based on questions asked.

Unsurprisingly those most likely to be affected by IHT (i.e. the over 60’s with a current wealth or intended inheritance value close to or above IHT thresholds), had made the most gifts and the largest gifts. 18% said they gave more than £20,000 in the two years prior to the interview, compared with 6% for the rest of the population. However, IHT was still not cited as the primary reason for giving for most of this group of taxpayers.

The fact that IHT does not influence most people giving away assets is perhaps to be expected given the relatively low number who understand the rules and exemptions available. It is to be hoped that the work currently being undertaken by the OTS in respect of simplifying the IHT rules will ultimately result in a better understanding of the tax amongst the general population.

Links to our guides:

IHT: estate planning checklist

IHT: normal expenditure out of income (gifts)

IHT: transferable nil rate band

IHT: Transfers of value

External link:

Lifetime Gifting: Reliefs, Exemptions, and Behaviours’