Anticipated changes to inheritance tax gift reliefs may significantly impact current exemptions, according to experts.
- Current gift reliefs allow substantial gifts from individuals with high incomes, potentially without IHT implications.
- The Chancellor is considering alterations to streamline inheritance tax rules and possibly introduce a single, larger gifting allowance.
- Potential reforms may also affect the ‘7-year rule,’ which determines gifts’ IHT liability if the donor passes within a specified period.
- These changes are part of a broader government strategy to increase revenue while balancing economic implications of wealth transfer.
Experts at NFU Mutual anticipate major shifts in the treatment of inheritance tax (IHT) gift reliefs within the forthcoming Budget. Currently, multiple exemptions exist that facilitate significant financial gifts without immediate IHT consequences. Sean McCann, a chartered financial planner at NFU Mutual, remarks on the spotlight being cast on regular gifts made from one’s income that do not depreciate the individual’s standard of living. Notably, there is no current upper limit, a provision that those with substantial incomes have used to their advantage, for instance, in covering grandchildren’s educational fees. McCann notes this might soon change, suggesting a restructuring where gifts might either face restrictions or be compounded by new taxes, such as VAT on private education costs.
The complexity inherent in today’s gifting rules, allowing for diverse exemptions, could see a shift towards a more unified approach. McCann speculates this could involve abolishing smaller allowances—such as the £250 per individual per tax year and exemptions on wedding gifts—and instead expanding the annual gifting allowance significantly, perhaps to £15,000. However, it remains uncertain how generous this evolution might be, given the need for balancing increased tax revenue with encouraging intergenerational wealth transfer.
Furthermore, the ‘7-year rule’, which currently exempts gifts from IHT if the donor survives for seven years post-gift, faces scrutiny. Procuring bank statements over such an extended period proves challenging for many executors, as highlighted by McCann. In response to prior recommendations by the Office for Tax Simplification in 2019, which suggested shortening this period to five years, there are concerns that the Chancellor could extend it to 10 years, thereby exacerbating administrative burdens for executors.
As the government seeks to balance revenue generation with economic incentives, the proposed changes to inheritance tax gift reliefs promise to reshape wealth transfer dynamics.
