Lifetime gifting: the art of preserving wealth
Kerin Speedie, Associate Director and Head of Succession at Whitehead Monckton, highlights one way to ensure more of your wealth goes on to support those you cherish in the way you choose.
If you’ve spent a lifetime building a business, a property portfolio, or simply financial peace of mind, the Autumn Budget 2024 may have hit home. With Inheritance Tax (IHT) now touching pensions, international holdings and business assets, more families are considering how to reduce the value of their estate.
Understanding how the IHT landscape has shifted
The IHT nil-rate band remains frozen at £325,000 until 2030, with estates above that subject to 40% IHT. However, from 2027, unused pension funds will also join the estate for IHT purposes, curtailing the option to earmark those funds for distribution after death without increasing the IHT bill.
In a major change for farmers and business owners, from 2026 agricultural and business property will see only partial relief, with assets over £1m subject to IHT at 20%.
Changes also now affect those previously benefiting from ‘non-dom’ status – long-term UK residents may see their international assets included in UK IHT calculations.
Proactive estate planning is key.
Giving now to save later
Gifts made more than seven years before death can be a positive – and tax-efficient – method of transferring wealth as they can typically be excluded from your estate, provided they meet HMRC’s criteria for ‘potentially exempt transfers.’
This includes gifts to individuals (though not to spouses/civil partners, who already enjoy IHT exemptions) or specific trusts.
But beware: if you are considering gifting your home but continuing to live in it rent-free, the value may still be included in your estate.
Kerin Speedie
Annual allowances
This first step in lifetime giving is to use the exemptions you can use year after year:
• Annual gift exemption: £3,000 each year, tax-free
• Wedding gifts: Up to £5,000 for a child, £2,500 for a grandchild, £1,000 for others
• Small gifts: Unlimited gifts of up to £250 per person
• Charitable gifts: tax- exempt, and donating 10% or more of your estate may reduce your IHT rate from 40% to 36%
Estate planning in a new IHT environment
The overall rules about giving haven’t changed, and regular lifetime giving remains one of the most straightforward ways of reducing the value of your estate. But with pensions now entering the IHT frame, drawing and gifting portions of unused pension funds – despite potential income tax implications – could be worthwhile.
Likewise, business owners may consider transferring portions of agricultural or commercial property to heirs, provided it doesn’t trigger reservation-of-benefit rules.
As ever, precise execution is key. Estate planning is both an art and a science, and the missteps can be costly, so seek experienced legal and financial advice before making moves.
Protect your legacy
Strategic lifetime gifting isn’t only about generosity – it’s about control over your wealth. With tightening tax rules and shifting reliefs, your best defence is early action.
At Whitehead Monckton, we’re here to help you protect your wealth, providing the practical, pragmatic and empathetic advice you need to decide how to share it with the next generation.