Given that Inheritance Tax (IHT) is currently undergoing a series of changes that will see more estates than ever before pulled into scope, finding a tax-efficient way of managing finances is a pressing concern.
A recent tribunal case has demonstrated that attempting to mitigate your IHT bill without expert support is risky and can lead to unexpected issues.
This ruling, along with other recent cases, are worth understanding if you want to know the pitfalls to avoid when using gifts to lower IHT exposure.
What was the Inheritance Tax gifting tribunal case about?
The case in question, Hosking v HMRC [2026] UKFTT 406 (TC), centred on the years of generous gifts to charities and political causes made by Mr Hosking.
Between 2015 and 2023, Mr Hosking made contributions of roughly £47.5 million from income generated through investments that he viewed as surplus to requirements.
Of his generous donations, approximately £10.8 million was given in charitable donations, while £11.9 million was given as political donations.
Most of these gifts were not of concern to HMRC, but between March 2011 and October 2016, Mr Hosking made fifteen donations totalling £1,737,236 to organisations campaigning for Brexit and these became the focus of the tribunal case.
A 2011 donation of £50,000 that Mr Hosking could not remember making and had given little thought to since was also called into question.
These gifts resulted in an £349,309 IHT bill being given by HMRC, which was then appealed by Mr Hosking.
What did the tribunal case determine for Inheritance Tax gifting?
HMRC have a specific definition of gifts that are exempt from IHT exposure and this definition has been given greater clarity from the tribunal case.
While it was accepted that Mr Hosking had sufficient income to make the gifts without affecting his lifestyle, the disagreement centred on whether those payments could be classed as “normal expenditure out of income” under the Inheritance Tax Act 1984.
Normal expenditure out of income requires a settled pattern that is judged based on if a clear pattern over time emerges or if a firm resolution is made and followed.
In the case of Mr Hosking, neither of these things happened.
That is where other individuals looking to manage their IHT exposure need to take note.
A lack of predictability to the giving and no documented or recalled statement of intent meant that HMRC did not view the gifts as “normal expenditure out of income.”
What lessons can be learned from the tribunal case?
There are some clear takeaways if you are concerned about managing your own estate.
Mr Hosking did not keep sufficient records and did not keep any for some of the donations.
HMRC were likely unimpressed by his forgetting about a £50,000 donation and it would be hard to argue the intent of a gift that was not remembered.
The case also shows the danger of assuming that being generous across many years creates a legally recognised pattern.
Mr Hosking gave money when asked, mostly when attending charity functions, but could not later explain the logic behind any individual gift.
The frequency of his attendance at these events was not enough for it to be considered a pattern, so giving sporadic gifts to other organisations or loved ones may be viewed with similar scepticism.
Ultimately, the lesson to learn is that generosity is no substitute for professional financial advice.
Our team can review your IHT strategies to ensure that they will be sufficient for reducing your exposure.
The prevalence of IHT now will likely see more confusion than before, so getting expert support is vital if you want to protect your financial legacy.
Don’t let a surprise Inheritance Tax bill dampen your generous spirit, speak to our team today.
