The amount of inheritance tax paid on gifts has climbed more than 153% since 2011 to £256m in the 2020-21 tax year, according to an HM Revenue & Customs response to an Freedom of Information (FOI) request.

The number of estates that paid IHT on gifts has more than doubled since 2011, with 1,300 paying the tax in 2020-21.

Plymouth-based national IFA firm Continuum, which made the FOI request, said the average amount of IHT paid by estates rose from an average of £171,186 in the 2011-12 tax year to £196,923 by 2020-21.

Ben Alcock, Chartered Financial Planner at Continuum, said more people could reduce the amount in their estate by giving money away while they are still alive, “but the taxman is wise to this choice. Unless people live for another seven years, gifts will count as part of an estate when people die.”

According to a report from HMRC and the National Centre For Social Research in 2019, 52% of those over the age of 70 had made monetary gifts of at least £1,000 over their lifetime, with 24% having gifted during the last two years.

Those in wealthier groups were also more likely to have gifted with 57% of those with £500,000 or more having gifted in comparison to 14% of those with wealth under £100,000.

People can give away a total of £3,000 of gifts each tax year, known as the annual exemption, plus as many gifts as they want of £250 per person each tax year (as long as no other exemption has been used on the same person), which is the small gifts allowance, explained Mr Alcock. For parents, on the occasion of their son or daughter's marriage or civil partnership, parents can gift them £5,000 and grandparent can gift £2,500. 

Despite these opportunities the number of estates paying IHT on gifts has been rising steadily, topping 1,000 in 2019-20 and climbing to 1,300 the following year, the latest year of which data is available.

The 2020-21 tax year is the most recent for which HMRC has complete data on a liabilities basis. The data is lagged because the IHT bill does not have to be settled until six months after the end of the month in which the person died.

There are further delays if, for instance, the valuation of the estate cannot be settled easily or if the full tax payment has not been received by HMRC.

Inheritance Tax Paid of Gifts 2011-2021

Source: Freedom of Information request to HMRC by Continuum. Data correct as of 09.01.24