Lifetime Gifts, Inheritance Tax and the Hotchpot Clause Explained

What is a Lifetime Gift?

A lifetime gift is any money, property or valuable asset you give to someone while you are alive. Common examples include helping a child with a house deposit, giving a sum of money to mark a significant occasion, selling a property to a relative at below market value, or writing off a debt that someone owed you.

From an inheritance tax perspective, gifts made during your lifetime may be relevant to your estate if you die within seven years of making them. These are called Potentially Exempt Transfers — they are potentially exempt from inheritance tax because if you survive for seven years after the gift, no inheritance tax is due on it. If you die within seven years, a sliding scale of tax relief may apply depending on when the gift was made.

We do not provide tax advice. The inheritance tax rules around lifetime gifts are complex and you should seek independent advice from a qualified accountant or financial advisor if you are concerned about the tax implications of gifts you have made or plan to make.

The Fairness Problem

Suppose you have two adult children. Over the years, you gave one of them £60,000 to help buy a house. The other received nothing — they were more financially independent and did not need the help. Your will divides your estate equally between them.

On the face of it, that seems fair — 50/50. But across their lifetimes, one child has received £60,000 more than the other from you. Is the equal split in your will actually equal in practice?

This is the problem the hotchpot clause addresses.

What is the Hotchpot Clause?

The hotchpot clause is a provision in your will that requires a beneficiary to bring any substantial lifetime gifts they have received from you into account before taking their share of your estate. The idea is to ensure that all beneficiaries end up with an overall fair share of everything you have given and left, not just an equal slice of what remains at your death.

The clause works by having the executor notionally add back the value of any relevant lifetime gifts, calculate the total, and then divide it according to your will — adjusting each beneficiary's share accordingly. The child who received the £60,000 does not pay it back into the estate, but they account for it by receiving a smaller share of what remains.

This is not a legal requirement. It is an optional clause that you include if you want it to apply. Without it, your will is followed exactly as written regardless of any lifetime gifts you have made.

When Should You Include a Hotchpot Clause?

A hotchpot clause is worth considering if:

• You have given significantly more to one child than another during your lifetime
• You want your children to be treated fairly overall — not just equally in terms of what your will says
• You want to reduce the risk of disputes among your beneficiaries after your death

You may not want to include it if you deliberately gave more to one child and view that as separate from their inheritance, or if you see lifetime gifts as extra help rather than an advance on what they will receive from your estate.

The clause only applies to the beneficiaries you specify and to the gifts you record. Good record-keeping — noting who received what, when and why — makes the clause far easier for your executor to apply correctly.