Inheritance Tax (IHT) affects more families each year, largely due to frozen thresholds and rising asset values. With major reforms taking effect between 2026 and 2027, many of our clients are now asking how lifetime gifting can help reduce the value of their estate.
Below, Kerin Speedie from Whitehead Monckton’s Succession team looks at what has changed recently, and answers the most common questions clients ask about IHT, including how to minimise IHT through lifetime giving, and what is meant by the 7‑year rule.
What IHT changes do I need to know about for the 2026/27 tax year?
The Autumn Budget 2024 introduced several significant reforms:
Unused pension funds will be included in the estate for IHT purposes. Previously, they were excluded.
In a welcome change to the cap announced in the 2024 Autumn budget, in December 2025, the government announced an increased threshold of £2.5 million of qualifying agricultural or business assets.
The first £2.5 million of qualifying assets now gets 100% relief, allowing spouses or civil partners to pass on up to £5 million of qualifying assets between them before paying IHT.
Qualifying assets include:
The combined cap means families with mixed agricultural and business assets must consider how best to allocate relief.
And for estate planning purposes, it’s important to ensure that your assets are structured correctly.
From April 2026, individuals resident in the UK for 10 of the previous 20 years will be taxed on their worldwide assets, including some offshore trusts.
Finally, while not strictly a ‘change’, it’s important to be aware that the IHT threshold, below which no IHT is payable on an estate, remains at £325,000 until April 2030. With rising property values, more estates will exceed this limit, pulling them into IHT liability.
These changes mean lifetime gifting may now play a more central role in estate planning.
How can lifetime gifting reduce the Inheritance Tax on my estate?
One way to reduce the value of your estate is with lifetime gifts. If structured correctly and timed effectively, they can fall outside your estate entirely — meaning no IHT will be payable on them.
The key mechanism is the 7‑year rule.
What is the 7‑year rule for Inheritance Tax?
Most lifetime gifts are treated as Potentially Exempt Transfers (PETs). If you survive seven years from the date of the gift, the gift falls outside your estate, and no IHT is payable on it.
If you die within seven years, the gift may still attract IHT, although taper relief can reduce the tax after year three.
What counts as a Potentially Exempt Transfer (PET)?
A PET must meet three conditions:
Gifts between spouses or civil partners are already exempt and therefore do not qualify as PETs.
What is a “gift with reservation of benefit”?
This is an important distinction to be aware of, and is one of the most common pitfalls in estate planning.
A gift only reduces your estate if you give it away completely.
If you continue to benefit from the asset, HMRC will treat it as still belonging to you.
Examples include:
These are known as gifts with reservation of benefit, and they remain fully taxable.
What annual gift exemptions can I use to reduce the value of my estate for IHT?
Some good news is that the UK offers several tax‑free gifting allowances, which, used effectively, can allow you to pass on some of your estate during your lifetime – helping your beneficiaries and reducing your future IHT liability:
This exemption is extremely powerful and often underused.
Are gifts to charity exempt from Inheritance Tax?
Yes. Gifts to charity are always exempt. Although not relevant to lifetime gifts, if you leave 10% or more of your estate to charity when you die, the IHT rate on the remainder falls from 40% to 36%, making charity gifts a potentially powerful way to reduce your IHT liability.
How do the 2026/27 changes affect lifetime gifting strategies?
The most effective lifetime gifting strategy for you will depend on your personal circumstances, and you will need tailored advice, but here are some strategies to consider:
With pensions becoming taxable from 2027, some clients may consider drawing down more of their pension and making lifetime gifts from the withdrawn funds. This may still be tax‑efficient despite income tax on withdrawals.
With APR/BPR capped, families may need to:
Should I make lifetime gifts without legal advice?
We’d always advocate taking legal advice before committing to any gifts. While lifetime gifting can be a highly effective way of reducing the IHT liability on your estate, mistakes can be costly.
Risks include:
Before making any significant gifts, seek specialist legal advice from our Inheritance Tax lawyers to ensure your strategy is compliant, tax‑efficient and aligned with your long‑term objectives.
How Whitehead Monckton can help with lifetime gifting and estate planning
Contact our Succession team today for a consultation with a specialist lawyer who can:
We understand that planning what happens to your estate can be a sensitive subject, and we are here to offer you practical, pragmatic and empathetic advice, guiding you through the process of deciding how your wealth should be distributed during your lifetime and after it.
We also offer our Legal Review Programme, which is designed to prompt you to update your succession planning arrangements when required.
Lifetime giving remains one of the most effective ways to reduce IHT — but only when done properly.
