Changes to inheritance tax law under Prime Minister Andy Burnham have prompted people to explore gifting strategies to minimise tax on their estates. From April 2027, any leftover pension funds after death will be subject to inheritance tax, BBC Radio 4’s Moneybox programme reported.
Key exemptions for gifts
Tax expert David Dodgson of The Private Office outlined several exemptions. The most important is the annual £3,000 gift allowance, which applies to individuals. Married couples each have this allowance and can also carry over unused allowance from the previous year, potentially allowing £12,000 in tax-free gifts.
Another exemption allows gifts of £5,000 per child in respect of their wedding. This is separate from the £3,000 annual limit.
Surplus income gifting
Dodgson also highlighted the surplus income rule: if you have regular income above your expenditure, you can give it away tax-free, provided you keep proper records. Host Paul Lewis noted that inheritance tax is widely disliked, though only 5% of estates actually pay it. The threshold has been frozen at £325,000 since 2009.
Listener Simon asked about gifting £13,000 in one year—exceeding the £3,000 limit by £10,000—and whether HMRC would tax that amount immediately or add it to his estate. Dodgson explained that the gift would not be taxed immediately, and the marriage exemption could apply if the children are getting married.
Records and forms
Dodgson advised keeping detailed records for regular gifts, referencing the HMRC IHT403 form as a guide. He noted that the impending inclusion of pensions in inheritance tax from 2027 is driving increased interest in lifetime gifting: “A key catalyst for this sort of gifting has undoubtedly been the impending disappearance of pensions into the IHT net from April 2027.”
