Plymouth (28.11.25) – An increasing number of Brits are being caught out by inheritance tax on gifts, according to analysis of the latest data from HM Revenue & Customers by financial advice firm Continuum.
The proportion of IHT paid on gifts increased over 153% since 2011 to £256m in the 2020-21 tax year (the latest data from HMRC).
The number of those paying IHT on gifts also increased over 120% since 2011, with 1300 paying the tax in 202021, according to the data shared with Continuum in a Freedom of Information request.
In the 2011-12 tax year an average of £171,186 of IHT was paid by estates who paid IHT on gifts. For the 2020-21 tax year this increased to £196,923.
The seven year rule is generally well-known by most clients. As is the £3,000 annual exemption. However, there are other allowances that are less well known. For example, for parents, on the occasion of your son or daughter’s marriage or civil partnership you are able to gift them £5,000 and if you are the grandparent you can gift them £2,500.
It is less commonly known that the seven-year rule does not apply to gifts made out of excess income. The rule allows any taxpayer to give away unlimited sums of money without getting caught by IHT – as long as the money comes out of income, not capital
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.”
The seven-year rule means you can give away surplus income from employment, property, pensions, interest and dividends. You cannot sell up capital assets (although you might be able to gift jewellery or a car), and you cannot claim that gifts are made out of several years of accumulated income. You need to be able to show that you have genuine income coming in to cover the gifts that are going out.
HMRC will look at income in the year the gift was made to see if it was affordable.
Your client will need to keep thorough records. They will need to log their salary, pensions, investments, savings income, mortgages, insurance, household bills, travel costs, holidays and care home fees for the relevant years, as well as the details of the gifts themselves. The executor of their estate will need evidence to claim the exemption when they come to fill in the IHT forms.
Inheritance Tax Paid of Gifts 2011-2021
| Tax Year | Number of estates that paid IHT on gifts | Sum of IHT paid on gifts (£m) |
| 2011-12 | 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 |
Source: Freedom of Information request to HMRC by Continuum. Data correct as of 17.11.25
Editors Notes – About Continuum
Continuum, headquartered in Plymouth, was established in 2014 by founding partner, Martin Brown, as a National IFA brand to offer a modern, new financial advice experience.
The business focuses on creating a three-way partnership between Continuum, the adviser and the client, in an environment where each party can only succeed and grow if the other parties also succeed and grow.
By educating customers through an award-winning financial education programme and offering our clients a loyalty programme, Continuum develops long-term relationships strongly endorsed though market leading Net Promoter Scores – most recent customer survey delivered a score of +90.
An in-house discretionary model portfolio service, My Continuum Wealth, was initiated in July 2021 to offer an exclusive MPS (Model Portfolio Service) to Continuum advisers.
Continuum now holds assets under influence in excess of £2.75 billion.
In December 2020 Continuum was awarded ESG kitemark (ESGmark) accreditation in recognition of its business approach of Environmental, Social Responsibility and Governance matters.
Continuum is a trading name of Continuum (Financial Services) LLP which is authorised and regulated by the Financial Conduct Authority. Continuum (Financial Services) LLP is a Limited Liability Partnership
Media
Katherine Mitchell 07917 855881 kmitchell@brandonconsultingservices.co.uk
