As families gather this Christmas, many are considering trips away as a way to create lasting memories. But paying for holidays for grown-up children or extended family could, in some cases, count as a gift for inheritance tax (IHT) purposes.
With plans to bring unused private pension savings into the IHT net from April 2027, more people are choosing to spend money now rather than leave assets subject to a 40 per cent tax. Alexandra Loydon of St James’s Place said: “We’ve seen a rise in the number of people accessing their pensions, and some are saying they would rather spend it now.”
The rules around IHT can be complex. Estates above £325,000 may face a 40 per cent tax on any value exceeding that threshold. A further £175,000 allowance applies if the family home is left to direct descendants, while assets left to a spouse or civil partner remain entirely tax-free. Couples can combine allowances, potentially passing £1 million inheritance tax-free.
Gifts made more than seven years before death are exempt under the “seven-year rule.” Annual exemptions allow £3,000 per person (£6,000 per couple) to be gifted tax-free, with unused allowances carried forward one year. Small gifts up to £250 per person per tax year are also allowed. However, these limits may be exhausted by regular financial support or other gifting.
Legal experts warn that holiday spending can sometimes be considered a “transfer of value.” Jonathan Jacobs of Morr & Co explained that while holidays are not usually reported to HMRC, the value could count toward IHT if the donor dies within seven years. Craig Hughes of Menzies added that HMRC does not distinguish between modest or luxury trips—what matters is whether you’ve paid for someone else’s costs.
The circumstances of the holiday are important. If family members are travelling to provide care or support, the payment may be considered a necessity rather than a gift, says Katie Ingham of Walker Foster. Regular holiday spending from surplus income is generally exempt from IHT, provided it does not affect the donor’s standard of living. Alexandra Milton of Knights notes that demonstrating a regular pattern of giving can help clarify intentions, even if the first payment is made with a letter confirming a long-term plan.
While it is rare for HMRC to investigate holiday gifts, families should plan carefully, particularly when funding holidays for adult children or extended relatives, to ensure they do not inadvertently trigger inheritance tax liabilities.
