With inheritance tax rules set to tighten in 2026–27, advisers are warning that wealthy families who rush lifetime gifts could trigger large tax bills. Recent FOI data from RBC Wealth Management showed more than 14,000 gifts became liable for inheritance tax in 2022–23 after donors passed away within seven years, with the largest failing gifts averaging £7.9 million and potentially generating tax bills of over £3 million.
The figures show that more households are transferring money or assets to children while they are still alive, yet a growing number of these gifts later become taxable because they fall within the seven-year inheritance tax window.
The rise comes at a moment of rapid change in the tax landscape. Major shifts to pensions and business reliefs are prompting families to speed up succession planning, sometimes without fully understanding the risks. Advisers say the trend is accelerating.
A surge in gifting
One of the strongest drivers of this new wave of gifting is the pension reform coming into force on 6 April 2027. Under the current rules pension pots can often be passed on free of inheritance tax. From 2027, however, pension wealth will become taxable on death. Several advisers say clients now want to extract money from pensions early and pass it on before these new charges apply.
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Camilla Wallace, partner at Wedlake Bell, says she is seeing noticeable behavioural change: ‘Clients are considering withdrawing their tax-free lump sum allowances from their pensions in order to make onward gifts to children to start the seven-year survivorship clock as soon as possible. They are aware of the tax implications and often twin such planning with life insurance arrangements.’
The anticipated changes to Agricultural Property Relief and Business Property Relief in April 2026 are adding further urgency. These reliefs have long shielded farming businesses and private companies from inheritance tax, but the rules are tightening. Emily Osborne, partner at Stephenson Harwood, says these reforms are pushing clients towards lifetime transfers: ‘The pension changes and the APR/BPR changes which apply from April 2026, are driving more lifetime gifting. Whilst this does increase the risk of failed gifts, if successful it removes value from the estate of the donor.’
‘In some cases the tax bills can be enormous’
Under current rules a gift only escapes inheritance tax if the donor survives seven years. If the donor dies sooner the gift becomes taxable, and the bill can be huge. RBC Wealth Management, which provided the FOI data, says the number of large failed gifts has risen significantly.
Nick Ritchie, senior wealth planner at RBC, says the family motivation behind gifting is often straightforward: parents want to help younger generations earlier in life, especially with property, education or childcare. But the seven-year rule continues to catch people out. ‘Often these gifts fail,’ he says. ‘Parents want to help their children earlier in life, but if they die within seven years the gift becomes taxable. In some cases the tax bills can be enormous.’
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Osborne points out an important detail that explains why families continue gifting despite the risks: ‘Even if the gift fails the IHT position is no worse than if no gift had been made, so a lot of wealthy families are willing to take the risk.’A failed gift doesn’t necessarily incur extra tax than they would have paid under inheritance tax.
Life insurance quietly becomes standard
Because the risk of a failed gift can never be eliminated, life insurance is now becoming a standard tool for UHNW families. Osborne says: ‘It is standard practice to recommend life insurance for families making lifetime gifts, particularly as this is usually relatively inexpensive and straightforward to put in place. Most UHNW individuals do put life insurance in place alongside any lifetime gifting.’
Wallace echoes this trend, noting the increase in insurance reviews across her client base. ‘Given all the recent changes including the upcoming changes to the treatment of pensions from 6 April 2027 as well as APR/BPR and London restrictions, we are seeing a lot of life insurance reviews,’ she says.
Advisers say that families who gift early, take out insurance and keep good documentation are in the strongest position. But many still underestimate what their executors will have to do when the donor dies. HMRC expects a full record of all lifetime gifts, even small ones.
Osborne says scrutiny is increasing: ‘In the current economic climate it is likely that HMRC will scrutinise IHT returns more closely to check that all relevant lifetime gifts have been properly included. Record keeping is important to ensure executors can meet their disclosure obligations.’
Older tax planning structures
While gifting itself is rising, advisers say families have become more cautious about complex or aggressive tax strategies. Osborne notes a clear shift in attitude: ‘We have seen a move away from complex planning, as the tools at HMRC’s disposal to counteract such strategies have increased, for example through increased powers to access and use information and the GAAR.’
In August, Moneyweek reported investigations rose to 3,961 in 2024/25 – up 41 per cent from 2,807 the year before – and Wallace says that while the government has ‘committed to more boots on the ground’, the rules around potentially exempt transfers themselves remain unchanged.
‘I’m sure they will be looking at all of this quite carefully but the potentially exempt transfer regime has been in place for a long time and the rules are neither new nor unclear.’
Families may take gifting more seriously now because of wider reforms, but the fundamentals have not changed.
Despite the scale of some tax bills, advisers emphasise that well-executed lifetime gifting remains one of the simplest and most reliable estate-planning tools available. The core principles are straightforward:
- start the seven-year clock as early as possible
- avoid complicated schemes
- take out life insurance where appropriate
- keep clear records
Ritchie says that even when the rules feel unfriendly, families continue gifting because they value helping the next generation during meaningful times in life. Osborne adds that gifting still makes sense for many families, because even if a gift fails, the tax outcome for many is no worse than if no gift had been made.
With a wave of new tax changes arriving in 2026 and 2027, the rise in lifetime gifting is unlikely to slow. But as FOI data shows, for many wealthy families keen to pass on money early, the challenge is not just about whether to gift, but how to do it safely.
