Rachel Reeves is reportedly considering implementing additional modifications to Inheritance Tax, with a potential restriction on lifetime gifting. Currently, gifts made more than seven years before one’s death are exempt from Inheritance Tax. For gifts given between three to seven years before death, a “taper relief” applies, starting at 32%.
The Treasury is contemplating a cap on lifetime gifting to address a significant deficit in public finances, as reported by The Guardian. This proposal coincides with the announcement of a new Winter Fuel Payment deadline by the Department for Work and Pensions.
The proposed cap would limit the amount individuals can donate and potentially alter the “taper relief” for lifetime gifting. A Treasury spokesperson emphasized the government’s focus on growing the economy to strengthen public finances, citing planning reforms aimed at boosting economic growth and reducing borrowing.
While most families do not pay Inheritance Tax due to existing exemptions, upcoming changes will subject pensions to this tax. Inheritance Tax applies to the estate of a deceased person, comprising property, possessions, and money, with taxation triggered for wealth transferred within seven years of death and estates valued over £325,000.
Exceptions exist, such as no Inheritance Tax when leaving an estate to a spouse or civil partner, and potential increases in the tax threshold when bequeathing a home to children or grandchildren. Couples can transfer up to £1 million without Inheritance Tax, and the standard tax rate is 40% for taxable estates.
Options to reduce Inheritance Tax include a reduced tax rate of 36% for assets bequeathed to charity and potential Inheritance Tax on inherited pensions from April 2027. Inherited pensions will be included in the estate of the deceased from that date, with exceptions for death in service payments.