Alice Giddings
Published December 2, 2025 1:49pm
Updated December 2, 2025 1:50pm
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Some people are gifting very big gifts this Christmas (Picture: Getty Images)
Tis the season to give gifts, but some families have been handed heavy charges for being a little too generous.
More than 14,000 Brits have faced unexpected inheritance tax bills after a relative died within seven years of gifting them cash or assets.
These handouts — the largest of which were worth a staggering £7.9 million each — were intended to circumvent the 40% inheritance tax by gifting part of their estate to a family member, at least seven years before passing away.
But this popular get-around for wealthy individuals only works if the seven-year rule is followed. Those that fell shy have been hit with huge bills.
Of the 14,030 ‘gifts gone wrong’ that were liable for inheritance tax in 2022-2023, the average value of them was £171,000 after exemptions and allowances, according to a freedom of information request from HM Revenue & Customs.
This means that if the relative who gave them the donation died within three years (the threshold at which you pay the full 40% tax), they’d be lumped with an eye-watering bill of £68,400.
When it comes to the top 25 largest ‘failed gifts’ — those worth £7.9 million — the inheritance tax bill would’ve been £3.1 million if the death occurred within the three year window.
The largest ‘failed gifts’ were worth £7.9 million (Picture: Getty Images)
What you need to know about inheritance tax
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Previous Page Next PageInheritance tax is a tax on the property, money, and possessions of someone who has died, with the standard rate being 40%.
You usually won’t pay this tax if your estate is worth less than £325,000, or if you leave everything above that financial threshold to your spouse, civil partner, a charity or a community amateur sports club.
If you’re passing your home down to your children or grandchildren, you won’t have to pay the tax unless it exceeds a £500,000 threshold.
The inheritance tax then only applies to the part of your estate that is above that financial cut-off. So if you had an estate worth £600,000 and the portion that’s tax free is £325,000, you’d pay the 40% tax only on the £275,000 that’s left over. This amounts to £110,000.
Some gifts you give while you’re alive can be taxed after you die, although the seven-year rule means you won’t be taxed on it, as long as you live for more than seven years after the gift was given.
If you do pass away less than seven years after the gifting, the amount of tax will depend on the ‘taper relief’ you receive, which is on a sliding scale.
If you die less than three years after, the gifts will be taxed at the full 40%; if it’s three to four years you’ll be taxed at 32%; four to five years and you’ll be taxed at 24%; five to six years will amount to a 16% tax; and six to seven years will incur an 8% tax.
Rachel Reeves’ changes since being chancellor has also affected inheritance tax (Picture: Carl Court/Getty Images)
It’s no longer just for the wealthy
Even if you’re not rolling in the dough, this seven-year rule may still apply to you.
‘Strategic gifting was once seen as a tactic of the super-affluent, but has now gone mainstream,’ says Michelle Holgate from investment firm RBC Brewin Dolphin, which submitted the freedom of information request.
‘We’re getting inquiries in particular from farmers looking to pass on assets such as land to the next generation without triggering a big inheritance tax bill.
‘People are naturally protective of family businesses, which in some cases have been built up over several generations. They want to keep these businesses in the family and see them thrive long into the future.’
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And the chancellor is making more and more of our assets taxable. Last year, she announced inheritance tax on private pension pots from April 2027, a UK first.
She also altered the circumstances around relief for agricultural property and business property, which had been a lifeline for farmers and family businesses to pass on many of their assets free from tax.
From April next year, the reliefs will be limited to the first £1 million worth of the estate, and anything above that will have an inheritance tax of 20%.
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The Office for Budget Responsibility (OBR) forecasts these changes mean inheritance tax revenue will nearly double in the next five years to £14.3 billion.
Farmers in uproar
On November 19, 2024, thousands of farmers descended on Westminster to protest Rachel Reeves’ inheritance tax change.
About 1,800 National Farmers’ Union (NFU) members – three times as many as originally planned – took part with banners condemning Labour’s change.
One striking banner read: ‘Stop killing the people who feed you.’
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Previous Page Next PageAmong the procession were children on toy tractors who led a small march, as well as stars like Kaleb Cooper and Jeremy Clarkson, who spotlight the issues facing farmers on the show Clarkson’s Farm.
Kaleb said: ‘It’s the passing down of your family farm to the next generation. If I want to pass my business onto my child, I don’t know if he can afford to take that on with the new tax bill.
‘It could be unprofitable to make a livelihood off that business – that’s why everyone has come together today.’
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