Affluent savers dish out cash gifts to family to reduce inheritance tax ahead of new pension rules

More than a quarter of wealthy savers have taken steps to reduce their savings rate. inheritance tax The data shows the bill they left behind.

Sixty-one per cent of active savers with balances of at least £50,000 said they believed Britain’s inheritance tax regime was unfair and needed to be changed, in a survey by Paragon Bank.

28 per cent said they had taken steps to reduce their exposure to inheritance tax, with 68 per cent saying they had done so by distributing cash.

Currently, someone can transfer £325,000 tax-free and receive an additional allowance of £175,000 if they pass their mother’s home to direct descendants. A couple could share these allowances, allowing a potential £1 million to be transferred tax-free.

However, within the scope of plans that Chancellor Rachel Reeves will announce in Autumn 2024 BudgetThe inclusion of unspent retirement benefits in inheritance tax calculations for the first time from April 2027 will draw more people into its net.

This has led some people to try to reduce their taxable wealth.

Cash gifts are one of the simplest ways to reduce your inheritance tax bill because they are tax-free if you live for at least seven years. If you die before seven years are up, inheritance tax is charged at varying rates.

Some cash gifts are tax-free regardless of the seven-year rule. These include gifts of up to £3,000 per year and an unused balance of £3,000 from the previous tax year.

37 percent of respondents said they had increased their spending on daily living to reduce their exposure to inheritance tax. Twenty-seven percent said they had established a foundation or other legal structure.

A smaller share of survey respondents, 16 percent, said they had gifted an asset such as property or land, according to Paragon.

The research showed that a third of cash gift givers donate up to £3,000 per tax year to stay within the annual gift allowance. Twenty-four per cent of those surveyed said they had given cash gifts exceeding £3,000 in one go.

More than a quarter of those who gave cash in excess of their annual gift allowance gave between £3,000 and £10,000, while 19 per cent said they had given a one-off gift of between £10,000 and £25,000.

A third said they had donated between £25,001 and £100,000, while more than one in 10, or 14 per cent, had donated more than £100,000. While 38 percent of this group said they were concerned about the seven-year gifting rule, 3 percent said they were unaware of the rule.

When asked who they gave gifts to, almost half of the participants said they gave cash to their children.

One-quarter said they gave cash gifts to their grandchildren, 19 percent to other family members, and 15 percent to charities.

Forty-eight per cent of respondents said they review inheritance tax rules as part of their financial planning.

Four in 10 of the 2,000 people surveyed said they were not worried about running out of money later in life, while 44 percent said they were not too worried.

Andrew Wright, savings manager at Paragon Bank, said: ‘As inheritance tax rules continue to evolve, many people are taking practical steps to protect their wealth for future generations; whether that means gifting cash, reviewing wills, or creating structures to manage how wealth is transferred.

‘What is particularly striking is that those who give lifetime gifts do so from a position of great trust. Most don’t worry about falling short later in life; This shows they are planning carefully and acting with purpose rather than simply reacting to future tax liabilities.’

He added: ‘Despite this willingness to take action, IHT remains an area where many people still lack confidence. The rules can be complex, so it’s important that savers take the time to understand their options and make the right decisions for their long-term finances, their families and the legacy they want to leave.’

Inheritance tax revenues rose to a record high in the last financial year as Labour’s targeting of property owners helped fund huge spending increases.

Official data last month showed annual inheritance tax revenues rising to £8.5bn between 2025 and 2026. This compares with total revenue of £8.3bn the previous year.

Wealth Club’s chief investment strategist Susannah Streeter said extending the freeze on valuation bands would force more ‘ordinary families’ to pay inheritance tax, adding to financial distress.