Lifetime Gifting: Are the rumours true?

November 21, 2025

Inheritance tax is one of the most talked about aspects of the UK tax system and continues to divide opinion. Many argue that it is unfair for individuals and families who have already paid large amounts of tax during their life, whereas supporters say Inheritance Tax is a way to reduce inequality and redistribute generational wealth.

The rumour mill is in full swing with the Autumn Budget approaching with worries that Rachel Reeves is planning on tightening the rules around lifetime gifting. Reportedly they are planning a crackdown on the value of gifts people can make to their friends and families in their lives.

How the Current Inheritance Tax Rules Work

Under current law, everyone has a tax-free allowance of £325,000. This is known as the Nil Rate Band. There is also the Residence Nil Rate Band of £175,000, which can be used when someone leaves their home to a direct descendant. This means an individual could pass on up to £500,000 tax free. If the Nil Rate Band and Residence Nil Rate Band remain unused, a married couple can pass on up to £1 million tax free. Anything over this is taxed at 40%, which means larger Estates can be hit with a substantial Inheritance Tax bill.

Lifetime gifting is currently an attractive way for individuals to reduce the size of their Estate. Gifts made during a person’s lifetime are classed as Potentially Exempt Transfers. This means that they are exempt from Inheritance Tax at the time of the gift, however if the person making the gift dies within seven years, the gift will be included in the Estate when calculating the Inheritance Tax by reducing an individual’s available Nil Rate Band.

If this happens, the rate of tax charged will vary according to how many years have passed between the gift and the death. The rate of tax begins to reduce after three years to 32%, after five years it is reduced to 24%, and after seven years the gift will be Inheritance Tax free. This is known as the ‘seven-year rule’.

There are a number of other exemptions that apply to lifetime gifting. Individuals can gift up to £3,000 each year, make small gifts of £250 to any number of recipients, regular gifts from surplus income, and larger gifts for occasions such as Weddings and birthdays. Any transfers that are made between spouses are also exempt from Inheritance Tax.

Potential Changes to Lifetime Gifting Rules

Speculation around the 2025 Autumn Budget focuses on two potential changes that they might make to the current rules.

First, the Government may introduce a lifetime cap on the total amount that can be passed on tax-free in a person’s lifetime, for instance a cap between £50,000 and £200,000 could be introduced meaning gifts above the cap could be taxed at 40% upon death. This would be a significant change to the current rules where there is no limit on the amount an individual can gift as long as they survive seven years. It is currently unclear whether the resulting tax bill would need to be paid during that individual’s life or whether their Inheritance Tax bill would be increased.

Second, it has been suggested that the seven-year rule will be extended to a ten-year period increasing the window during which gifts remain taxable, or even that the taper relief will be scrapped entirely or tightened thereby removing the options for individuals to reduce the size of their Estate through lifetime gifting. We also wonder if gifts into trusts may face stricter rules or reporting requirements.

Both of the potential changes would have a large impact on the current Inheritance Tax regime, and Inheritance Tax planning to gift to reduce the value of your Estate and see your loved ones enjoy that money earlier. This means many Estates would inevitably face a sizeable Inheritance Tax bill.

How to Prepare for Possible Inheritance Tax Changes

Whilst we cannot predict what will be announced in the Autumn Budget, we cannot rule out that there will be changes to the current rules and planning ahead is key to managing Inheritance Tax and we hope that gifts made before Budget Day will not be affected retrospectively.

How can we help

If you are already considering lifetime gifting or would like advice on how to reduce your Estate’s future tax burden our team of experts are here to assist you and help you stay one step ahead. Please contact us or join our webinar on the 27 November where our team will unpack the Autumn Budget updates on IHT, gifting & estate planning.

Robyn Hack
<script>
document.addEventListener('DOMContentLoaded', function () {
  const deptEl = document.getElementById('acf-author-department');
  const department = deptEl?.dataset?.department;

  if (typeof gtag === 'function' && department) {
    gtag('set', { author_department: department });
  }
});


  window.dataLayer = window.dataLayer || [];
  const dept = document.getElementById("author-department")?.textContent?.trim();
  if (dept) {
    window.dataLayer.push({
      event: "authorDataReady",
      author_department: dept
    });
  }

</script>
View profileContact Us

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Latest Legal Insights