TIGHTENING GIFT-GIVING REGULATIONS IS AMONG THE MEASURES BEING CONSIDERED

The UK Treasury is seeking further new ways to reduce the growing deficit ahead of the much-anticipated Autumn Budget. With a financial shortfall exceeding £40 billion, reports suggest that officials, under the guidance of Chancellor Rachel Reeves, are exploring potential changes to Inheritance Tax (IHT) rules. Tightening gifting regulations is just one of the measures being considered to increase revenue and stabilise the country’s finances.

Current market conditions, sluggish economic growth, persistent inflation and rising unemployment have put significant pressure on public spending. Although there have been calls for a wealth tax, the government is reportedly considering the less politically sensitive option of reforming IHT thresholds.

POTENTIAL GIFTING CAPS UNDER CONSIDERATION

One option being considered is the introduction of a lifetime cap on tax-free gifts. Currently, individuals can pass on assets without tax if these gifts are made at least seven years before their death. Gifts made between three and seven years prior that are above the donor’s nil rate band are taxed on a sliding scale on the excess above the nil rate band, with rates decreasing annually from 32% to 8% in what’s known as ‘taper relief’.

By implementing a cap, the government could restrict the total value of assets or monetary gifts exempt from IHT rules, regardless of when they are given. This would represent a significant shift in policy and could impact taxpayers involved in long-term estate planning. Other aspects of the gifting framework, including the taper rate itself, are also reportedly being reviewed.

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This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested. The Financial Conduct Authority does not regulate estate planning, tax advice or trusts.