Understanding Promises and Gifts Before Death
Making financial gifts during your lifetime can be an effective way to manage your estate and reduce inheritance tax (IHT) exposure. Known as lifetime gifting, these transfers can include money, property, or other valuable assets given to family members or charities before death.
The rules surrounding these gifts are complex. For example, under the 7-year gifting rule, any gifts you make may remain subject to inheritance tax if you die within seven years of making them. However, certain allowances — such as the lifetime gift tax exemption — can make gifting highly tax-efficient when properly planned.
At Vault Private Client, we help you navigate these rules, ensuring that your estate plan is structured to maximise allowances, reduce exposure, and safeguard wealth for your chosen beneficiaries.
The Importance of Documenting Promises and Gifts
Not all generosity comes in the form of formal transfers. Many people make informal promises of future gifts or provide financial support to family during their lifetime. However, promises made before death generally do not carry legal weight unless recorded in a legally binding will or other document.
Our team advises on how to record and structure these arrangements so that your wishes are respected and to avoid disputes among family members later. We also provide guidance on how gifts interact with estate planning, potential deprivation of assets claims from local authorities, and tax charges linked to IHT.
By seeking legal advice early, you can ensure that your gifts are both effective and compliant with inheritance tax law.
FREQUENTLY ASKED QUESTIONS.
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1. What is lifetime gifting and how does it work?Lifetime gifting involves transferring assets during your lifetime. These gifts may reduce the value of your estate, lowering potential inheritance tax. However, rules such as the 7 year gifting rule mean timing is crucial.
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2. What is the 7 year gifting rule?If you survive for seven years after making a gift, it is generally exempt from IHT. If you die within seven years, the gift may still be taxable, although taper relief can reduce the liability after three years.
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3. Are there exemptions to lifetime gift tax?Yes. The lifetime gift tax exemption includes the £3,000 annual allowance, small gifts of £250, and certain wedding gifts. Transfers to a spouse or civil partner are fully exempt from inheritance tax.
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4. What happens if there is a gift with reservation of benefit?If you continue to benefit from the asset you have given away — for example, gifting your house but continuing to live in it — HMRC may still treat the asset as part of your estate for inheritance tax purposes.
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5. Can lifetime gifts be challenged after death?Yes. Disputes may arise if family members argue the transfer was not intended as a gift, or if there are concerns about undue influence. Proper documentation and legal advice reduce this risk.
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6. What is a potentially exempt transfer (PET)?A PET is a lifetime gift that becomes exempt from inheritance tax if you survive for seven years. If you die before then, the gift may be taxable depending on its value and timing.
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7. What if gifts reduce someone’s standard of living?If a gift leaves you unable to maintain your usual lifestyle, HMRC may investigate. However, regular gifts from surplus income that do not affect your standard of living may qualify for exemption.
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8. Can lifetime gifts affect care home funding?Yes. If you make large transfers before requiring care, the local authority may consider this a deliberate deprivation of assets, meaning the gift could still count towards your assessment.
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9. How do gifts fit into estate planning?Gifts can play a vital role in inheritance tax planning, but they should be considered alongside wills, trusts, and other arrangements to ensure the whole estate is managed effectively.
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10. Do promises of future gifts carry legal weight?No. Promises are not enforceable unless included in a will or formal agreement. Only documented gifts before death are recognised for inheritance and tax purposes.
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11. Can gifts to charities before death reduce inheritance tax?Yes. Charitable donations are immediately exempt from inheritance tax, and leaving at least 10% of your estate to charity may reduce the overall tax rate applied.
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12. What happens if gifts are made shortly before death?If gifts are made and the donor dies soon after, they may still fall within the seven year rule. The value of those gifts may then be added back into the estate for IHT calculations.
THE BEST IN THE BUSINESS.
Vault Private Client combines specialist legal expertise with a practical understanding of family dynamics and tax law. Our probate and estate planning team have decades of experience advising on lifetime gifting, tax exemptions, and disputes over gifts made before death. We pride ourselves on giving clear, compassionate guidance during difficult times.
Russell Kaminski
Partner and Head of Private Client
Lucy Cresswell
Associate
Alison Rocca
Partner
Jason Stanley
Partner
Holly Greensmith
Solicitor
Mark Dawson
Chief Executive Officer
Amanda McAlister
Head of Group Consumer Brands
Because we are here to help you.
Every situation is unique, and the best approach depends on your personal and financial circumstances.
Whether you’re considering lifetime gifts as part of your estate plan, or facing questions about gifts made by a loved one before their death, our solicitors are here to help.
We provide tailored legal advice to ensure your family’s interests are protected while minimising inheritance tax exposure.
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