IHT reforms drive demand for 'gifting with control'

Inheritance tax (IHT) reforms are resulting in high-net-worth families increasingly turning to "gifting with control" strategies as they reassess how wealth is passed between generations, Utmost has found.

Recent HMRC data showed that frozen IHT thresholds were already set to drive tax receipts to a fifth consecutive record annual haul in the current financial year, and the further tightening of the regime was set to collect an extra £700m, taking total receipts to £70.6bn between 2025/26 and 2030/31.

Reforms bringing unused pension funds within the scope of IHT from 2027 were also reshaping wealth strategies, as pensions had historically been used as an efficient vehicle for passing on wealth outside the estate.

The wealth solutions provider has found that clients were increasingly exploring lifetime gifting to reduce the taxable value of their estate, with these gifts falling outside the taxable estate if the donor survived for seven years, under the potentially exempt transfer rules.

Despite this, advisers have been warned that outright gifts can leave donors exposed if circumstances change, through life events like divorce, of if beneficiaries receive substantial wealth before they are financially prepared.

As a result, families are seeking structures that allow then to retain oversight of how wealth is distributed to future generations, rather than making outright transfers.

Utmost said that this approach, which is described as “gifting with control”, can involve placing assets into trusts or other planning structures, allowing funds to be released gradually, for example when beneficiaries reach certain ages or life milestones.

Discretionary trusts are often used in these strategies as trustees can retain flexibility over how and when funds are distributed.

Utmost’s analysis of the Trust Registration Service data earlier this year showed that 121,000 new trusts were registered in 2024/25, taking the total number to 835,000 with the majority of trusts paying.

Utmost senior relationship manager, Mark Jephcott, said: "With IHT receipts continuing to increase and further tightening of the regime being implemented over the rest of the decade, many families are reassessing how and when they pass on wealth.

"Historically many clients expected to use pension assets as part of their legacy planning, but with those funds falling within the IHT net from 6 April 2027, lifetime gifting is becoming a more common part of that conversation.

"Rather than making outright gifts, families are increasingly looking at structures, like trusts or insurance-based solutions, that allow wealth to be transferred while retaining a degree of control over how it is used.

"These controls can be relaxed at specific milestones and help to ensure assets are protected and passed on efficiently while supporting long-term family objectives."

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