How a Last-Minute Gift Could Save Your Heirs £140,000 in Inheritance Tax

When it comes to inheritance tax (IHT), timing really can make all the difference. For families with larger estates, a carefully timed gift - even in the final stages of life - could help preserve a significant tax-free allowance and reduce the overall tax bill by as much as £140,000.

Understanding the Residence Nil Rate Band (RNRB)

The Residence Nil Rate Band (RNRB) is an additional inheritance tax allowance available when a main residence is passed on to direct descendants, such as children or grandchildren. It provides an extra £175,000 per person (or £350,000 for a couple), on top of the standard nil-rate band of £325,000 per person.

However, this valuable relief is tapered away for estates worth over £2 million. For every £2 an estate exceeds this threshold, £1 of the RNRB is lost. By the time an estate reaches £2.35 million (or £2.7 million for couples passing on both allowances), the RNRB is entirely lost.

The Role of Last-Minute Gifting

For high-net-worth individuals, this tapering rule can reduce or remove a key tax relief. While gifting during one’s lifetime is a known estate planning strategy, many people don’t realise that even a gift made shortly before death – known as a Potentially Exempt Transfer (PET) – can be used to reinstate the RNRB.

PETs are normally exempt from inheritance tax if the donor survives seven years. But even if they do not, these gifts are not included when calculating the estate’s value for RNRB tapering purposes. That means a well-timed gift can bring the estate below the £2 million threshold and preserve the full RNRB – potentially saving thousands in tax.

Real-World Example

Take a £2.2 million estate. Normally, this would see its Residence Nil Rate Band reduced by £100,000 due to tapering. But if a gift of £250,000 is made shortly before death, the taxable estate drops below £2 million. This brings the full RNRB back into play, potentially saving £40,000 in inheritance tax.

For couples with estates over £2.7 million, this could restore the full £350,000 allowance – delivering an inheritance tax saving of up to £140,000.

Considerations Before Gifting

While this form of late-stage estate planning can be highly effective, it’s essential to seek advice from experienced inheritance tax solicitors.  There are important factors to consider, including:

• Capital Gains Tax (CGT): Certain assets, like shares or property, may trigger CGT on gifting, depending on the asset’s gain.

• Impact on beneficiaries: The person receiving the gift may need advice on how it affects their own tax position.

• Proper record-keeping: It is essential to maintain accurate records and inform HMRC appropriately to ensure compliance.

Get Personalised Advice From Estate Planning Solicitors

At Stephen Rimmer, our estate planning solicitors in Eastbourne can help you explore the most effective strategies for reducing your inheritance tax liability. Whether you’re planning ahead or looking at last-minute options for preserving your family’s wealth, our team provides tailored advice based on your individual circumstances.

Understanding how gifts affect the Residence Nil Rate Band could mean the difference between losing a valuable relief or passing on a larger legacy to the next generation.

Need advice on inheritance tax or estate planning?
Contact our specialist solicitors today to arrange a confidential consultation.

About the author.

Adrian Sharpin  is a member of our Private Client team with over 18 years of specialist experience dealing with Wills, estates and lifetime planning.