Will One Child Have to Pay More In Inheritance Tax Than Others?

Yes, siblings can end up paying different amounts if a parent makes large lifetime gifts and then dies within seven years; careful will‑wording and smart use of IHT allowances can keep things fair.

What’s going on here

• Big gifts during life are usually classed as “potentially exempt transfers” (PETs); they become fully exempt only if the donor survives seven years. If death happens sooner, the gift “fails” and becomes chargeable to IHT.
• If multiple gifts were made in the seven years before death, the oldest gifts use the nil‑rate band first, which can leave later gifts exposed to tax so two children given the same amounts on different days may face different liabilities.

Why siblings can be treated differently

• The £325,000 nil‑rate band is shared across lifetime gifts made within seven years; it’s used in date order, oldest first. If the first gift absorbs the nil‑rate band, later gifts can be taxed.
• Taper relief reduces the tax on gifts if death is between 3 and 7 years after the gift, but only when there’s actually tax to pay above the nil‑rate band, there’s no taper if the total chargeable gifts don’t exceed the band.

Key thresholds to know in 2025

• Nil‑rate band: £325,000, frozen until at least 2027/28 under current legislation.
• Residence nil‑rate band: £175,000 when a qualifying home passes to direct descendants; it helps the estate on death but does not shelter lifetime gifts.
• Married couples/civil partners can potentially combine both bands on second death, enabling up to £1m to pass free of IHT if conditions are met.

Who actually pays the tax on failed gifts?

• Default position: IHT due on chargeable lifetime gifts within seven years is generally payable by the recipient of that gift, not automatically by the estate. That’s why siblings can end up paying different amounts.
• Will‑wording can change this: a clause can direct that any IHT arising on failed PETs is paid from the residuary estate, equalising outcomes between children. Estate planning should review this wording.

Example: two equal gifts, unequal tax

Day 1, Child A receives £300,000; Day 2, Child B receives £300,000; parent dies four years later. The nil‑rate band of £325,000 covers Child A’s gift first, leaving only £25,000 of band for Child B; the remaining £275,000 could be taxable, reduced by taper relief given death is between 3 and 4 years. The result: Child B may owe IHT while Child A owes none unless the will says the estate pays.

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How to keep things fair between children

• Add a will clause: instruct that any IHT on failed PETs or CLTs is paid out of residue, not by individual recipients. This equalises the burden. Review this if gifting patterns change.

• Gift on the same day or use identical timing/amounts when possible, so the nil‑rate band is apportioned more evenly across gifts if death occurs within seven years. Record dates carefully.

• Consider trusts for larger or staggered gifts if control, parity, or asset‑protection are priorities, noting separate trust IHT rules. Specialist advice recommended.

Use allowances before large gifts

• Annual exemption: give up to £3,000 each tax year; carry forward one year’s unused amount. Couples can combine for £6,000.
• Small gifts: as many gifts as desired up to £250 per person per year, as long as the annual exemption isn’t used for the same person.
• Wedding/civil partnership gifts: up to £5,000 to a child, £2,500 to a grandchild, £1,000 to others; can combine with the £3,000 annual exemption.
• Gifts out of surplus income: regular gifts from genuine surplus income are usually immediately IHT‑free if they don’t reduce the donor’s standard of living, but keep evidence.

Taper relief: what it does and doesn’t do

• Taper reduces the tax on lifetime gifts when death is 3–7 years after the gift; it does not reduce the value of the gift, only the tax due above the nil‑rate band.
• Indicative scale: 0–3 years no relief; 3–4 years 20% relief; 4–5 years 40%; 5–6 years 60%; 6–7 years 80%. Planning should factor this when sequencing gifts.

Residence nil‑rate band and siblings

• The residence nil‑rate band supports transfers of a qualifying home to direct descendants on death, which can lift the tax‑free amount to as much as £1m for a couple, but it cannot be used against lifetime gifts to children.
• Estates over £2m taper away the residence band by £1 per £2, so larger estates may lose part or all of this relief unless planning adjusts the estate value.

Practical steps before gifting

• Map seven‑year windows: list prior gifts with dates and values; the oldest gifts use the nil‑rate band first on death.

• Decide who should bear any IHT: set will instructions accordingly so recipients aren’t surprised later.

• Document surplus‑income gifts: keep income/expense evidence to preserve the exemption.

• Revisit the plan annually: nil‑rate bands are frozen, but personal circumstances, asset values, and prior gifts change the picture.

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