£336 Million In Unexpected Inheritance Tax: Why Good Intentions Can Still Go Wrong

Sydney Mitchell Solicitors is encouraging families to review their estate planning after new figures revealed that hundreds of millions of pounds in Inheritance Tax has been paid because lifetime gifts failed to achieve the intended tax savings.

Recent HMRC figures reveal that, between 2021 and 2026, nearly 2,500 lifetime gifts with a combined value of around £840 million failed for Inheritance Tax purposes, resulting in tax liabilities of approximately £336 million. Many of these cases involved people continuing to benefit from assets they believed they had already given away.

Tracy Creed, Head of Private Client at Sydney Mitchell Solicitors, gave this interview answering some of the most common questions families are asking.

Why are these figures so significant?

Tracy Creed: They demonstrate that many people are trying to plan ahead for their families, but are inadvertently falling foul of complex tax rules. Nobody sets out to create an unexpected tax bill for their loved ones, yet these figures show it happens more often than many people realise. Inheritance Tax planning isn’t simply about transferring ownership of an asset. The way the gift is made, and what happens afterwards, is just as important.

What is the biggest mistake people make?

Tracy Creed: One of the most common issues is what’s known as a “gift with reservation of benefit”. A classic example is a parent transferring ownership of their home to their children but continuing to live there without paying a full market rent. Although they believe they’ve given the property away, HMRC may still treat it as forming part of their estate for Inheritance Tax purposes because they continued to benefit from it.

Isn’t there a seven-year rule?

Tracy Creed: There is, but it’s often misunderstood. Many people know that gifts can become exempt from Inheritance Tax after seven years. However, there are many different issues which can effect that position. Simply surviving seven years doesn’t automatically solve every issue.

Are only wealthy families affected?

Tracy Creed: Not at all. With property values increasing over many years and Inheritance Tax thresholds remaining frozen, more ordinary families are finding their estates fall outside Inheritance Tax allowance and reliefs than ever before. For many people, their family home represents the majority of their wealth, making careful planning increasingly important.

Does this mean people shouldn’t make lifetime gifts?

Tracy Creed: Absolutely not. Lifetime gifting can be an extremely effective part of estate planning when it is carried out correctly. The key is making sure you understand the legal and tax consequences before transferring valuable assets. Often a short conversation with a solicitor can prevent expensive problems years later.

What should people do before giving away property or money?

Tracy Creed: Every family’s circumstances are different, but I would encourage people to:

• Review their Will alongside any planned gifts.
• Keep clear records of gifts, including dates and values.
• Take advice before transferring property or assets.
• Ensure they understand whether they will continue to benefit from anything they intend to give away.
• Review their estate planning regularly as financial and family circumstances change.

Planning should always consider the bigger picture rather than focusing on one individual transaction.

What’s your advice for families who have already made gifts?

Tracy Creed: Don’t assume everything is necessarily in order—or that something has gone wrong. Many arrangements can be reviewed and, where appropriate, updated to ensure they continue to achieve the objectives originally intended. The important thing is not to wait until someone has died before discovering there is an issue. Estate planning works best when it is reviewed during lifetime.