Anticipated changes to inheritance tax (IHT) gift reliefs could impact how gifts are taxed.
- Reforms may focus on regular gifts out of normal expenditure, which currently face no upper limit.
- The Chancellor may consider simplifying complex gifting rules with a single substantial allowance.
- A potential change to the ‘7-year rule’ could impact the period required to avoid IHT.
- Speculations suggest these changes are part of efforts to boost government revenue.
Experts from NFU Mutual foresee significant revisions to inheritance tax gift reliefs in the forthcoming Budget, which might alter how certain gifts are treated. The focus is on the various exemptions currently applied to gifts, specifically regular gifts given out of a donor’s normal income. Currently, these gifts are exempt from IHT provided they do not affect the individual’s standard of living. Sean McCann, a chartered financial planner, suggests that these gifts might be scrutinised and potentially capped, limiting how much wealth can be transferred tax-free, particularly affecting individuals with high incomes.
The current gifting system allows for multiple exemptions, which McCann claims could be replaced with a single, more generous allowance. He proposed that allowances for giving £250 annually to multiple people might be removed. Instead, an increase in the current £3,000 annual allowance to £15,000 is possible, although the final decision will weigh the necessity of higher revenue against the benefits of wealth distribution during a donor’s lifetime.
An additional measure under review involves altering the ‘7-year rule’. Presently, gifts may only be free from IHT if the donor survives for seven years post-gifting. Retrieving financial records for such a duration can be onerous for executors, and McCann noted past recommendations to reduce this period to five years. However, there is also speculation of increasing it to ten years, which would intensify the administrative challenges faced by executors.
These potential reforms to inheritance tax regulations are viewed as measures to bolster government finances while encouraging a sensible passing of wealth through generations. The balance between revenue enhancement and the facilitation of lifetime wealth transfer remains central to these discussions.
The anticipated changes to inheritance tax gift reliefs signal a strategic move to enhance fiscal revenue while navigating the complexities of wealth transfer.
