IHT and Deathbed Gifts UK: Can You Give Money Away Before You Die to Avoid Inheritance Tax? (2026)
A last-minute gift does not avoid IHT — a PET requires seven years of survival. The annual exemption (£3,000), small gifts, and normal expenditure from income are immediately exempt and can still be used close to death. The equitable doctrine of donatio mortis causa is narrow and uncertain for IHT. Start estate planning well before any illness while capacity is beyond doubt.
| Gift Type | Immediate IHT Exemption? | Effective Close to Death? | Notes |
|---|---|---|---|
| PET (large cash / asset gift) | No — 7yr clock | Only if >7yr survival | Failed PET = in estate at 40% (taper after 3yr) |
| Annual exemption gift (£3k) | Yes | Yes | Immediately exempt; no seven-year clock |
| Small gift (£250/recipient) | Yes | Yes | Immediately exempt; separate from annual exemption |
| Normal expenditure from income | Yes (if pattern) | Only if established pattern | Must be regular, from income, from established pattern |
| Gift to charity | Yes (unlimited) | Yes | s23 IHTA — immediately and fully exempt |
| Donatio mortis causa (DMC) | Possibly (outside estate) | Yes (if valid DMC) | Narrow doctrine; HMRC IHT position uncertain |
| Gift without mental capacity | Void / voidable | No | May be recovered by estate; not a valid PET |
Deathbed Gifts and IHT: The Full Picture
The fundamental rule: PETs require seven years of survival
The most important thing to understand about deathbed gifts is this: a Potentially Exempt Transfer (PET) under s3A IHTA 1984 only becomes fully exempt from IHT if the donor survives for seven years after making the gift. If the donor dies before seven years, the PET is a 'failed PET' — it is brought back into the IHT calculation as if it were still in the estate. Taper relief reduces the IHT rate on failed PETs after three years (from 40% down to 8% in year 7) — but the gift is not eliminated. A large cash gift made one week before death, one month before death, or even two years before death is still caught by IHT (with partial taper relief after three years). This is why the timing of gifts matters enormously: the best IHT planning starts long before death is anticipated. Waiting until a terminal diagnosis before beginning a programme of gifting means the seven-year clock will almost certainly not complete — making PETs largely ineffective for last-minute estate reduction.
Taper relief on failed PETs: partial protection from years 3–7
If the donor dies within seven years of making a gift, but survives more than three years, taper relief reduces the IHT rate on the failed PET: Year 1–3 after gift: IHT at full 40% rate on the gift value above the NRB. Year 3–4: 32% (80% of 40%). Year 4–5: 24% (60% of 40%). Year 5–6: 16% (40% of 40%). Year 6–7: 8% (20% of 40%). After 7 years: nil (fully exempt). Note that taper relief applies to the rate — not to the value of the gift. And taper relief is only relevant where the cumulative PETs exceed the NRB (£325,000). PETs below the NRB are fully covered by the NRB — taper relief does not further reduce the tax on gifts within the NRB. A gift of £300,000 made two years before death is fully covered by the NRB — no IHT regardless of when death occurs. A gift of £600,000 made four years before death: NRB covers first £325,000 (nil IHT); remaining £275,000 is subject to taper: 24% × £275,000 = £66,000 IHT (rather than 40% × £275,000 = £110,000 if death had occurred in year 1).
What still works close to death: annual exemptions and normal expenditure
Certain IHT exemptions apply immediately — regardless of how long the donor lives after making the gift. These can still be used close to death: (1) Annual exemption (s19 IHTA 1984): £3,000 per tax year, with one year of carry-forward (£6,000 in the year of death if last year's allowance was unused). A gift using the annual exemption is immediately exempt — it is not a PET. Used close to death, it provides a small but immediate IHT reduction. (2) Small gifts exemption (s20 IHTA 1984): £250 per recipient per year — immediately exempt, not a PET. (3) Wedding/civil partnership gifts (s22): immediately exempt up to relevant amounts — but only immediately before the ceremony. (4) Normal expenditure from income (s21): where the donor has been making regular gifts from surplus income as part of their normal pattern of expenditure, gifts that fit this pattern are immediately exempt. This exemption requires an established pattern — a sudden large payment in the weeks before death does not qualify, even if paid from income. (5) Gifts to charity (s23): immediately exempt regardless of when made. These immediately exempt gifts are unaffected by the donor's remaining life expectancy.
Donatio mortis causa (DMC): the deathbed gift exception
Donatio mortis causa (Latin: 'gift on account of death') is an equitable doctrine that allows a gift made in contemplation of death to take effect outside the deceased's estate — without needing to comply with the formalities of a will or an outright lifetime gift. The doctrine derives from Roman law and was affirmed in English law in Sen v Headley [1991] Ch 425. The conditions for a valid DMC (established in Cain v Moon [1896] 2 QB 283 and subsequent cases): (1) The gift must be made in contemplation of the donor's impending death — not merely the general fact of mortality, but in the context of a specific illness or peril. (2) The gift must be conditional on death — it takes effect only if the donor dies; if the donor recovers, the gift is revocable and lapses. (3) The subject matter of the gift must be delivered to the donee (or a third party on the donee's behalf) — a simple oral promise to leave something by will is not a DMC. (4) The gift must be capable of passing by DMC — land was historically excluded (land requires a deed for transfer), but Sen v Headley established that the title deeds to a house can pass by DMC; bank account passbooks and share certificates have been accepted. A valid DMC takes effect outside the estate on death — it is neither a PET (no seven-year clock) nor a testamentary gift (no need for a will). IHT: a DMC is a gift taking effect on death — HMRC has argued that DMCs should be included in the estate for IHT (as a gift within the estate). The HMRC position on DMC and IHT is uncertain — legal advice is essential.
Gifts when mentally incapacitated: a significant risk
Gifts made by a person who lacked mental capacity at the time of the gift are potentially void or voidable. Mental capacity for gifts requires: understanding of the nature of the gift; the extent of the property being given; the moral claims of those who might expect to benefit; and the consequences of making the gift (Banks v Goodfellow (1870) test adapted for gifts). A gift made when a person lacks capacity: is not a valid PET — it cannot start the seven-year clock; may be challenged by the estate or other beneficiaries as void; may result in the gift being recovered by the estate and subject to IHT. Last-minute large gifts ('deathbed gifting') in the context of terminal illness are frequently challenged by HMRC and by other family members who may feel disadvantaged. Gifts made under LPA: attorneys acting under a Lasting Power of Attorney cannot make gifts for IHT planning purposes (other than customary gifts) — this requires a Court of Protection order. Only gifts made by the donor personally while they still have capacity are valid PETs. Begin IHT planning while full capacity is certain — do not delay until a terminal diagnosis or serious illness.
HMRC scrutiny of last-minute gifts
HMRC scrutinises patterns of gifting — particularly large cash transfers made in the period immediately before death. Where a decedent made significant bank transfers to family members in the months or years before death, HMRC may: request a full schedule of gifts made in the last seven years (form IHT403); challenge whether gifts are PETs or failed PETs (and therefore subject to IHT); question whether gifts were made as part of an established pattern of normal expenditure from income (s21 exemption) — or were capital transfers by another name; investigate whether gifts were made while the donor had mental capacity. Executors are under a legal duty to declare all gifts made in the seven years before death on the IHT400 return. Failing to declare known gifts is an IHT offence. The existence of bank statements and modern banking records means that large transfers in the final years of life are typically identified — HMRC can obtain financial records from banks in the course of an IHT investigation.
Frequently Asked Questions
Can you give money away just before you die to avoid inheritance tax?
Largely no. A gift made just before death is a failed Potentially Exempt Transfer (PET) — because the donor did not survive seven years. It is brought back into the IHT estate at full value (less any taper relief if the donor survived more than three years after the gift). Annual exemption gifts (£3,000/year), small gifts (£250/person), and normal expenditure from income are immediately exempt — they do not require a seven-year survival period. These can be used close to death if within established patterns. The legal doctrine of donatio mortis causa can operate in specific circumstances.
What is donatio mortis causa and does it avoid IHT?
Donatio mortis causa (DMC) is an equitable doctrine allowing certain gifts made in contemplation of impending death to take effect outside the estate without a will. Requirements: (1) made in contemplation of specific impending death; (2) conditional on death (revocable if the donor recovers); (3) delivered to the donee (or their representative); (4) capable of passing by DMC. A valid DMC passes outside the estate — but HMRC's position on whether DMCs are within the IHT estate is uncertain. Legal advice is essential. DMC is narrowly confined and cannot easily be planned in advance.
Does taper relief reduce IHT on gifts made a few years before death?
Taper relief reduces the IHT rate on gifts made more than three years before death — from 40% falling to 8% in years 6–7. But taper relief only applies to the portion of the gift above the NRB (£325,000). Gifts within the NRB face nil IHT regardless of timing (covered by the NRB). Large gifts made in years 3–7 before death attract partial IHT via the failed PET mechanism — the effective rate depends on the year of death and the size of cumulative gifts.
What happens if someone gives away money when they lack mental capacity?
A gift made without mental capacity is potentially void or voidable. It does not constitute a valid PET — the seven-year clock does not start. The gift may be recovered by the estate and included in the IHT calculation. Attorneys under an LPA cannot make IHT planning gifts without a Court of Protection order. All effective IHT planning gifts must be made by the donor personally while they have unquestionable mental capacity.
Does HMRC investigate deathbed gifts?
Yes. HMRC routinely requests form IHT403 (full schedule of gifts in the seven years before death) as part of the IHT400 process. Large cash transfers in the years before death are identified via bank records — modern banking data makes concealment very difficult. HMRC may also question whether gifts qualify for normal expenditure from income (s21) or are instead capital transfers not covered by that exemption. Executors must declare all known gifts; failing to declare is a criminal offence.
Start Your Estate Planning Now — While You Have Time
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