For many individuals and families, lifetime gifting forms part of long-term wealth planning. It allows assets to pass to the next generation in a measured way, supports family members earlier and can contribute to managing the value of an estate over time. Gifting can play an effective role in Inheritance Tax planning. The outcome depends on how the gift is made, what is being gifted and how the decision fits within the wider estate plan.
What Is Meant by a Lifetime Gift
A lifetime gift is not limited to cash. It can include property, investments, business interests or other assets transferred without receiving full value in return. From a planning perspective, gifting is often used to reduce the size of an estate gradually. The nature of the asset matters. Considerations differ where income is still required, control is important or access to the asset may be needed later. For this reason, gifting decisions are most effective when made as part of a broader estate planning discussion rather than in isolation.
How the Seven Year Rule Operates in Practice
When a gift is made, it does not usually fall outside of the estate immediately. Instead, it can remain relevant for Inheritance Tax purposes for a defined period, commonly referred to as the seven-year rule. If the person making the gift dies during this period, some or all of the value of that gift may still be considered liable for IHT. Once this period has passed, the gift typically falls fully outside of the estate. This timing point is central to how gifting works and should be treated as a core part of the planning decision, not an afterthought.
The Transitional Period Following a Gift
Lifetime gifting creates a clear transitional phase. While the intention may be to reduce future exposure, the position during this period is still time dependent. If death occurs during this phase, beneficiaries may find that a liability arises in relation to assets that were gifted earlier. This is particularly relevant where gifted assets are not easily converted to cash or where recipients do not hold liquid funds. For practical planning, it is also important to keep clear records of what was gifted, when it was gifted and the value at the time. These details are often needed as part of estate administration.
Integrating Gifting into a Wider Estate Plan
Because the seven-year period creates an ongoing planning window, gifting is best viewed as part of a longer journey rather than a one-off action. This does not alter the tax rules. It ensures gifting decisions remain aligned with affordability, personal objectives and the wider estate strategy. It also helps families plan for how any liability would be managed during the transitional period, should that ever become relevant.
Where Insurance May Support Gifting Strategies
In some circumstances, insurance is considered alongside a gifting strategy. This is commonly referred to as Gift Inter Vivos cover. This type of insurance is designed to provide cover during the period in which a gift remains relevant for Inheritance Tax purposes. As time passes and potential exposure reduces, the level of cover may reduce accordingly. Insurance here does not change the tax position. It can form part of a practical approach to how any liability might be met during the gifting period and should be reviewed regularly to ensure it continues to reflect personal circumstances.
The Importance of Timing and Ongoing Review
Gifting is rarely a one-off decision. Family circumstances change. Asset values move. Intentions evolve. Multiple gifts may be made over time. A structured review helps ensure earlier decisions still fit the overall estate plan and that any supporting arrangements remain aligned with personal objectives. This allows gifting to operate as part of an organised, evolving strategy over time.
Next Steps
If you are considering making lifetime gifts or would like to understand how the seven-year rule could affect your wider Inheritance Tax planning, LDN Finance can assist. Our Protection team can discuss your circumstances, explain how insurance solutions are sometimes used within gifting strategies and provide personalised illustrations where appropriate. To begin the conversation, complete the enquiry form linked on this page and a member of the team will be in touch.