Potential Changes to Inheritance Tax Gifting Rules in Upcoming Budget
Summary:
The UK government is considering reforms to inheritance tax (IHT) gifting rules in the upcoming Budget, potentially targeting longstanding tax avoidance strategies. Over 15% of retirees cite IHT changes as their top Budget concern, according to Hargreaves Lansdown research. Proposed modifications could include limiting lifetime gifts, reducing taper relief, extending the seven-year rule, or altering annual allowances. Financial experts advise reviewing estate planning strategies now, as any changes likely wouldn’t take effect until April 2026.
What This Means for You:
- Review your gifting strategy now – Current rules may change, so consider making tax-efficient gifts before potential reforms
- Document all financial gifts meticulously – Keep detailed records to simplify estate administration and avoid future IHT disputes
- Balance generosity with financial security – Avoid over-gifting that might leave you vulnerable to future care costs
- Consult a financial advisor – Professional guidance can help maximize current allowances before possible rule changes
Original Post:
Longstanding gifting rules used as a way to avoid inheritance tax could be under threat in next week’s Budget. Those at risk of leaving their loved ones an inheritance tax bill are being encouraged to review their finances and consider giving money away now where it makes sense for them.
More than one in every 10 retired people (15%) said changes to inheritance tax is their biggest Budget fear, according to a survey of 2,000 people for wealth firm Hargreaves Lansdown in October.
Since the summer, rumours have been swirling that inheritance tax (IHT) could once again be a target. One way chancellor Rachel Reeves could potentially increase IHT receipts is by raising the taxes on giving money away – known as gifting – it has been speculated.
However it is unlikely any Budget tax rises, if they do happen, would be put into practice before the new tax year in April 2026, so those considering making gifts likely still have time to look over their finances, review their options and potentially reduce their inheritance tax bill.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Sensible gifts can help support younger family members at a time when you’re still around to see them make the most of the money. It also gives you more control over how gifts are given – as well as cutting a potential inheritance tax bill.”
How could inheritance tax gifting rules change in the Budget?
Lifetime gifts: Currently, gifts of any size fall out of your estate after seven years (the seven-year rule). The government may limit total lifetime gift values.
Taper relief: The gradual reduction of IHT rates on gifts above £325,000 if the donor dies within seven years might be reduced or eliminated.
Extending the seven-year rule: The period could potentially extend to ten years, making tax planning more difficult.
Changing gifts from surplus income rules: The government may revisit annual allowances and rules about regular gifts from income.
How can I use gifting rules to avoid IHT now?
David Lunn, partner at TWM Solicitors, advises:
- Keep detailed gift records to simplify estate administration
- Avoid over-gifting that might jeopardize future care funding
- Don’t under-gift – use available allowances strategically
- Utilize surplus income exemptions properly with professional advice
- Exercise caution with powers of attorney regarding gifting
Extra Information:
GOV.UK: Inheritance Tax on Gifts – Official guidance on current gifting rules
Hargreaves Lansdown – Wealth management firm cited in the article
TWM Solicitors – Legal experts providing practical IHT advice
People Also Ask About:
- What is the current inheritance tax threshold? The nil-rate band is £325,000, with an additional £175,000 residence nil-rate band for qualifying estates.
- Can I give my house to my children to avoid inheritance tax? This is complex – you may need to pay market rent or it could be considered a “gift with reservation.”
- How much can I gift tax-free each year? You can give £3,000 annually (£6,000 if unused from previous year), plus £250 small gifts and wedding gifts up to £5,000.
- What happens if I die within 7 years of making a gift? The gift may be subject to IHT on a sliding scale (taper relief) if it exceeds the nil-rate band.
Expert Opinion:
“The potential IHT changes represent a significant shift in estate planning strategy. While immediate action may not be necessary, individuals with substantial assets should consider reviewing their plans with both financial and legal advisors. The window to utilize current gifting rules effectively may be closing, making proactive planning more important than ever.” – Estate Planning Specialist
Key Terms:
- Inheritance tax gifting rules reform
- Seven-year rule for IHT avoidance
- Taper relief changes in UK Budget
- Lifetime gifts inheritance tax planning
- Surplus income exemption for IHT
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