Families should be taking advice before gifting amid rumours of a possible extension to potentially exempt transfers (PET), according to wealth manager RBC Brewin Dolphin.

The firm stated that Chancellor, Rachel Reeves, was considering extending the ‘seven-year rule’ to 10 years, which would leave families either at risk of a higher inheritance tax bill or unable to cover their own costs for a long retirement.

PETs enable an individual to make gifts of unlimited value, which become exempt from tax if the individual survives for a period of seven years.

However, there are rumours that Reeves may extend the seven-year rule to 10 years.

RBC Brewin Dolphin’s freedom of information (FOI) request revealed that 13,380 people were hit with retrospective taxes, according to annual figures.

The top 50 ‘failed gifts’, where the donor has passed away within the seven years, averaged £3.6m after allowances and exemptions in 2020/21, leaving the recipients with tax bills of up to £1.4m.

HMRC rules require 40 per cent inheritance tax to be paid on lifetime gifts in the event of the donor dying within seven years.

The average ‘failed gift’ was £156,000 after allowances and exemptions, meaning a recipient paying 40 per cent inheritance tax on that sum faced a bill of £62,400 if the PET failed in the first three years.

Data published by HMRC earlier this week showed that inheritance tax receipts were 10 per cent higher in April to September 2024 compared to the same period last year.

RBC Brewin Dolphin encouraged clients to consider long-term family wealth planning alongside making gifts into trusts to mitigate the impact of surprise inheritance tax bills triggered by the seven-year rule.

“When talking to clients about gifting we always stress the importance of not giving away money that they might need in the future, especially towards any potential future care costs,” said RBC Brewin Dolphin financial planner, Carla Morris.

“Extending the seven-year period to 10 may well get people talking about their finances and gifting earlier but it also makes advice even more key because you are having to look even further into the future to ensure your own needs are met.

“And of course, with the longer timescale comes the likelihood that there will be more failed gifts and more IHT to pay, as well as adding more administration and complication to people’s estates.

“A carefully considered lifetime gifting plan can ensure a client gets to see the positive difference they can make to their families lives and financial security, but it needs careful advice and managing, which could include life cover, trusts and definitely needs good record keeping.

“To ensure you can enjoy a long a comfortable retirement as well as help your family it is crucial to plan ahead and take advice.”

---