Could I give £250 gifts to 400 people who then pay them to my daughters to beat inheritance tax on £100,000?

I am one of the people that will be adversely affected by Rachel Reeves’ unwarranted raid on unused pension pots.

Currently, this change will mean an additional inheritance tax charge of about £270,000 for me, if I died.

I have been looking at the gifting rules and the sums you can give away are measly, £3,000 each year, or unlimited £250 gifts but only one per person.

However, if I can gift £250 free of IHT to as many people as I wish, could I do that and then those people all give the money to my two daughters?

So, could I gift a total of £100,000 to 400 different people and they each in turn make £250 gifts to my daughters, giving them £50,000 each and thus avoiding inheritance tax?  R.J, via email

Harvey Dorset, of This is Money, replies: Recent changes mean that considerably more people are in line to incur inheritance tax bills on their estates in the years to come.

Pensions are set to fall into the inheritance tax net from 2027, meaning that many will find their estate is worth well above the inheritance tax allowance.

Inheritance tax receipts recently increased to £8.2billion from April 2024 to March 2025, more than £800million higher than the same period a year before.

One of the main ways to go about reducing a potential IHT bill is to make the most of gifting allowances to lower the value of your estate.

However, the current gifting allowances have been in place since the mid 1980s, with a maximum total annual inheritance tax-free gift limit of £3,000.

This has made it all the harder to meaningfully reduce the size of an estate by using this allowance.

The rules state: ‘On top of the £3,000 annual allowance, the rules stipulate that you can give as many £250 gifts to whomever you like, but this won’t be immediately exempt if the recipient received the annual gifting allowance or part of it.’

This is where your novel solution comes in. If you can find 400 willing participants – something I dare say you might have trouble with – why can’t you give them each £250 to then gift to your two daughters?

Unfortunately, as David Denton, tax expert at Quilter Cheviot, discusses below, you might not have found the genius solution that you might think.

Luckily though, there are other options that might be available to help you pass your wealth to your two daughters. 

David Denton, tax expert at Quilter Cheviot, replies: As the tax burden hits a recent high and rumours swirl of more tax rises to come, it is understandable that consumers may wish to find ways to reduce their tax bill. 

However, the tax authorities are rightly switched on to the potential for abuse of the system and people finding what they think to be new and novel ways to avoid tax.

Some may be legitimate but for the vast majority they are likely to cause more problems than it is worth.

The UK introduced the ‘General Anti–Abuse Rule’ (GAAR) in 2013 and this is designed to target those taxpayers who avoid paying tax in ways that are not in the spirit of the rules, despite some aspects being potentially legal.

Abusive arrangements can include as a series of pre–ordained steps, where HMRC would look at the overall effect of the series or combination of transactions in order to identify the real purpose. 

The GAAR applies to a number of personal taxes, including inheritance tax, so if enough tax was at risk, it could come into effect here given there is a pre–planned element and involves a number of people.

Instead you should be looking at how they can use the rules to still make substantial gifts. For example, should you expect to live for another seven years then it may be worth making a gift above the £3,000 limit as a potentially exempt transfer. After seven years of being gifted these assets will no longer be taken into account on death and be free from inheritance tax.

There are other possibilities for exempt gifts, such as marriage gifts, which can be up to £5000, according to the relationship between the donor and recipient.

Finally there is also the option of making gifts out of surplus income, where the gift is part of your normal expenditure and leaves you able to maintain your usual standard of living. These gifts can come from salary, dividends, pension income or rental income, so it does give you some options that are very much within the rules of the UK tax system.

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