Almost half (45%) of wealthy individuals have no written record of what they have gifted to loved ones with financial gifts.
This is a smart way to manage inheritance tax (IHT), but only if the right records are kept and put in writing.
This is according to research from Charles Stanley, part of Raymond James Wealth Management.
Almost a third (29%) rely on keeping mental notes on what they have gifted or plan to, while 17% simply have no record of what they have gifted in their lifetime.
Charles Stanley said: “While making financial gifts has always been a popular way to pass wealth onto loved ones and mitigate IHT on estates, without detailed written records of what has been gifted this could leave loved ones with potentially costly and unexpected tax bills.”
Under half (48%) of HNW respondents say they have a written list of exactly what they have gifted or plan to.
Charles Stanley added: “This will therefore make the job simpler for any executors of your estate, who will be responsible for reporting any financial gifts through the IHT400 form, particularly those made in the seven years prior to death.”
The majority (97%) have made or plan to make some form of financial gift to family members or friends, whether it be money for them to travel, use for a house deposit, or to start a business.
In 2024, the average financial gift was £8,367, which exceeds what individuals can give away under the current gifting rules of up to £3,000 each tax year.
This means that if individuals were to pass away within seven years of making these gifts, beneficiaries would be subject to paying IHT on what they were gifted.
Looking across generations, Baby Boomers (aged 61-79) say they have gifted an average of £11,756 in the last year, while generation X (aged 45-60) have gifted an average of £6,795.
Charles Stanley director of financial planning Harry Bell said: “Making financial gifts is one of the best ways to offset IHT, and is seeing a growth in popularity as a way to transfer wealth from generation to generation. With IHT thresholds also remaining frozen and private pensions set to be included in estate valuation from 2027, gifting will only become more popular as a tool for families to pass their wealth on.
“However our research shows that there is a concerning lack of understanding around gifting and the potential unintended consequences if not done appropriately.
“Making gifts by the book is what really matters. While many claim to keep a record of what gifts have been made, it’s only those with written records that HMRC can track. Any other gifts made without justification will be liable to IHT if the estate threshold exceeds £325,000.
“Seeking professional advice is highly advisable when it comes to estate planning. Not only can advisers support clients with achieving their wealth plans, but can help make the most of all tax-efficient vehicles and allowances to simplify estates left behind.”
