Does Lifetime Giving Always Save Inheritance Tax?

If you own an asset at death, it is subject to inheritance tax unless any reliefs or exemptions apply. This leads many people with sizeable estates, especially later in life, to start giving away assets to the next generation in order to avoid the IHT charge at death. Does this work? Yes, lifetime giving can be a very effective and successful way of reducing IHT, meaning a greater proportion of your estate passes to your loved ones and not to the Revenue. However, as with most tax planning, there are traps for the unwary.

It is not quite so simple as giving your favourite valuable painting to your son, and – bingo - IHT saved. First, you must survive seven years from the date of the gift before the gift fully falls outside of your estate for IHT purposes. Secondly, you must not retain any benefit in the asset given away.