Lifetime gifting: Key considerations for succession planning
20th October, 2025
Gifting is an important part of succession planning, and conversations are increasingly focused on lifetime gifts. Changes on the horizon such as restrictions to Business Property Relief and Agricultural Property Relief, proposals to bring pensions into estates for Inheritance Tax (IHT), and the long-frozen Nil Rate Band of £325,000, mean more people are facing IHT concerns than ever before.
Naturally, many look to gifting as a solution. But while giving assets away may seem straightforward, it’s rarely without complications. From unexpected tax bills to risks in the hands of recipients, gifting requires careful planning and professional advice – here are some of the key issues to be aware of.
The importance of specialist advice
Effective gifting often involves advice from three key professionals:
- Solicitors – to draft Wills, Trusts, Deeds, Lasting Powers of Attorney, and to provide legal structuring;
- Tax Accountants – to model complex plans, calculate liabilities and explore tax efficiencies; and
- Financial Planners – to assess affordability, often through cash flow modelling, and evidence that gifts are sustainable.
Working collaboratively, these professionals help ensure no risks are overlooked. Clients may also want to look for advisers with additional qualifications, such as membership of STEP (Society of Trust and Estate Practitioners), which signals commitment to high standards in succession planning.
Making use of gift allowances
Some gifts fall outside of IHT altogether and can be useful tools in succession planning:
- Annual Allowance – £3,000 each tax year (with one year’s carry forward);
- Small Gift Allowance – unlimited gifts of £250 per person (provided no other allowance is used for that person);
- Weddings and Civil Partnerships – £5,000 to a child, £2,500 to a grandchild, £1,000 to others; and
- Regular Gifts Out of Income – unlimited, if genuinely surplus to living costs.
These allowances provide opportunities to pass on wealth efficiently, but records should be kept to satisfy HMRC scrutiny.
When gifting goes wrong
Lifetime gifts can unravel if the recipient encounters difficulties. Divorce, bankruptcy or premature death can all divert gifts away from their intended purpose. In other cases, poor spending decisions or personal vulnerabilities may reduce the benefit of the gift.
To protect against this, structures such as trusts, or agreements like pre- and post-nuptial arrangements, can safeguard the value of gifts and ensure they deliver the long-term outcome intended.
Tax considerations
Tax is often the most overlooked aspect of gifting. Key pitfalls include:
- The seven-year rule – gifts made in the seven years before death may still be taxed, with liability often falling on the recipient;
- Order of gifts – the timing and sequencing of gifts can affect how allowances are used and which beneficiaries face tax bills; and
- Capital Gains Tax – non-cash gifts may trigger immediate liabilities.
Income Tax mismatches – transferring income-producing assets to someone in a higher tax bracket can reduce the value of the gift.
Careful coordination between solicitors and tax advisers can help avoid costly surprises.
Common mistakes to avoid
Some of the most expensive mistakes arise when:
- Donors gift property but continue to use it, triggering “Gifts with Reservation of Benefit.”;
- Assets are given away to avoid care fees but caught by Deprivation of Capital rules; and
- Trusts are used to avoid probate but end up creating additional complexity and cost.
Recipients are left without funds to cover IHT bills when gifts exceed allowances.
Most commonly of all – gifting is left too late.
A considered approach
Lifetime gifting can be an effective tool in succession planning, but only when carried out with foresight and the right advice. At Ward Hadaway, our specialist team of private client, family and corporate lawyers work alongside trusted financial planners and tax advisers to ensure that gifts are structured, protected and tax-efficient.
If you are considering making a lifetime gift as part of your succession planning, please get in touch with Suzanne Jaconelli for tailored advice.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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