The report shows one eighth of the population gave gifts in the two years prior to the survey, and this will rise as older generations give money to their children or grandchildren to help them onto the property ladder, or assist with educational expenses.
However, while people think they are doing a good thing, the report revealed 45 per cent of the UK population is unaware of the tax implications around gifting, which can be problematic, as Rachael Griffin, tax and financial planning expert at Quilter, explains: “A lack of knowledge can be immensely detrimental.
"Gifting during a lifetime has become a perverse game of Russian roulette, thanks to potentially exempt transfers. Essentially people have to ask themselves: ‘Do you think you’ll live longer than seven years?’
“With the Office for Tax Simplification already taking a close look at IHT, it’s interesting to see that HRMC is also doing some digging.”
She suggests one way to simplify things is to update the heavily outdated gifting allowance: “The annual IHT gifting allowance has remained unchanged at £3,000 since 1981 and, had the allowance been tracked to inflation, it would be permissible to gift £11,296 per tax year in 2018.”
Rhoda Copper, chartered tax adviser and council member of the Institute of Professional Willwriters, says: “If giving assets away is appropriate, then it is important to consider whether capital gains tax would apply.
“This does not apply to cash, but if a property is given to a child directly or via a trust, then it is likely any profit made between the date of acquiring that property and the date of gift will be subject to CGT.
“There are exemptions and potentially ways to defer paying the tax, but advice should be taken from a suitable professional.”
Also, when looking at the various options available for mitigating IHT, Mr Jones says the correct order of gifting needs to be considered.
“For many people, gifts to discretionary trusts should be done before gifts to bare trusts or outright gifts to individuals,” he says.
Yet he believes all available exemptions should be used. He explains: “One of the most overlooked exemptions is the normal expenditure out of income.
“As IHT is a tax on capital transfers, if there is surplus income with the intention to gift regularly then, subject to conditions, these gifts are fully exempt from day one.”
This is why Ms Kneen strongly advocates advice. She says: “One of the key points is to make sure clients understand what the gift or trust means for them. For a gift to be IHT effective, this will generally mean giving up access to the gifted assets.
