In the 2023-24 tax year, nearly 1,400 families paid a combined £315 million in inheritance tax on gifts made by deceased relatives shortly before their deaths, marking a record sum for this form of taxation, according to recently released data. These payments, averaging around £226,000 per family, stem from what are known as "failed gifts," where assets transferred within seven years of death are still subject to tax.

Under current rules, estates valued over £325,000 face a 40 percent inheritance tax (IHT), with an increased threshold of £500,000 if a main residence is passed to a direct descendant. While making gifts during a lifetime can reduce the taxable value of an estate, any gifts given less than seven years before death are combined back into the estate’s value for taxation purposes. The tax on these "failed gifts" decreases on a sliding scale depending on how many years before death the gift was made.

The data shows that if a person gifts £400,000 and subsequently dies within the seven-year period, only £325,000 of this amount is exempt, leaving £75,000 subject to inheritance tax. Over the last four years, more than 5,000 estates paid nearly £1.1 billion in tax related to such gifts. Experts emphasize that leaving gifts too close to the time of death can significantly increase the tax burden on beneficiaries.

Sean McCann of NFU Mutual, the financial firm that requested the data, noted the importance of understanding the timing of gifts in estate planning. The figures also indicate that the overall cost to families is higher than official totals, as the value of these gifts reduces the overall tax-free allowance available.

These figures shed light on the complexities of inheritance tax and estate planning, highlighting the financial challenges faced by families managing late-stage asset transfers.