More wealthy Britons are gifting their money to family members, according to tax advisors, following concerns that Rachel Reeves could make further changes to inheritance tax (IHT) rules.
Recent data showed that between April and December, IHT receipts brought in £6.3bn for the Government but there are worries Labour could look to increase this intake and make the tax more punitive this year.
Nimesh Shah of Blick Rothenberg said: “I have seen a significant increase in clients and prospects contacting us regarding IHT.
“The trend accelerated in the run-up to the autumn Budget when there were strong rumours that the 7-year rule could be extended to 10-years, or even worse, abolished completely and replaced with an upfront gift tax or a lifetime gift allowance.”
The seven-year rule states that no tax is due on any gifts you give if you live for seven years after giving them.
Ian Cook, chartered financial planner at Quilter Cheviot, said: “Prior to Labour’s first budget there were rumours that the seven-year rule might be extended to 10 years and there continues to be a general sense of unease amongst people that there could be further reforms.
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Read More“Extending to 10 years would make it much harder for families to plan effectively, as it increases the window during which gifts remain liable to tax.”
He said this would be “especially problematic” given the UK’s wider retirement savings and housing crisis.
However, he said the primary driver behind an increase in gifting is “a growing sense of unease about the broader tax landscape, with many fearing that higher taxes or stricter rules could be on the horizon.”
IHT is applied at a flat rate of 40 per cent on estates worth over £325,000, but the system includes many loopholes, meaning the effective rate is often much lower.
In October’s Budget, Ms Reeves took action to close some of these loopholes.
From April 2027 inherited pension pots will be subjected to IHT and farms will have to pay the tax for the first time.
The Chancellor also tightened up the tax breaks afforded to agricultural land and “business property relief”, exempting the first £1m of agricultural or business property. After that, it will be taxed at 20 per cent – half the rate of IHT required from others.
Other allowances could mean a couple who are married or in a civil partnership could pass on a farm worth as much as £3m.
But many farmers argue that while they are asset rich, they are cash poor and the changes would mean they would have to sell up to be able to pay the tax.
Mr Shah said he has been advising clients to bring forward any gifts they are planning.
“If they are going to make a gift anyway, you may as well do this now as it seems very likely to me that IHT will be reformed during this Parliament and made more costly.”
Mr Cook added: “I am actively encouraging clients to make full use of existing allowances and consider gifting more strategically. Many people hesitate to gift during their lifetime, leaving their estates subject to significant IHT charges. If the tax rules do become more punitive, the cost of inaction could mean a larger portion of their wealth going to the Exchequer.”
Although it is widely known as the country’s “most hated tax”, currently just 4 per cent of estates are liable for IHT. However, estimates from the Office for Budget Responsibility suggest this will increase to 10 per cent by 2030.
Mr Cook said simplifying the IHT system would have been a welcome move, including removing outdated reliefs or introducing more consistent policies which “would ensure fairness and accessibility, while reducing the reliance on complex estate planning strategies”.
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