Could Lifetime Gifting Be Capped?

Could Lifetime Gifting Be Capped? What It Means for Families and Inheritance Tax

The government may be considering a big change to how people pass on money and assets to their loved ones. Chancellor Rachel Reeves is reportedly looking at placing a cap on lifetime gifts, a move that could affect how families share wealth and potentially raise more tax revenue to help fill a £50 billion gap in public finances.

What Are the Current Rules?

Right now, people in the UK can give away unlimited money or assets during their lifetime without paying Inheritance Tax as long as they live for at least seven years after making the gift. If they pass away within that period, the amount may be taxed on a sliding scale (known as taper relief). This system could be changing.

What Could Change?

If a cap on lifetime gifts is introduced, people may only be able to give away a set amount, either per year or over their lifetime, before Inheritance Tax is applied. This could bring more gifts into the tax system, including everyday financial support like helping children with rent, education, or house deposits.

The aim is to tap into the huge amount of wealth being passed down, particularly from the baby boomer generation, through what some call the “great wealth transfer.”

Experts Warn of Unintended Consequences

Tax and legal experts have raised several concerns:

• Behavioural changes: People may delay giving gifts or choose to hold on to their wealth until death, which could reduce overall tax income.
• Administrative complexity: Tracking lifetime gifts over decades would be challenging for HMRC, especially if people do not keep detailed records.
• Impact on younger generations: Many young people rely on support from their parents. If gifts are taxed, it could reduce this help and affect things like the housing market.

Some experts suggest people may look for loopholes, such as giving non-cash gifts or using trusts, which are more complex but can offer better control.

Alternatives Being Considered

Other possible changes include:

• Reducing the seven-year gifting window to five years
• Removing taper relief (making all gifts within the window fully taxable)
• Updating outdated gifting allowances, which have not changed in over 40 years
• Offering higher tax-free limits for business or farm assets

What Happens Next?

It is still just a proposal and much depends on how any cap is designed. If it is too low, even middle-income families could be affected, especially in areas with high property values. Some may even wait until the next election before making any financial decisions, hoping a future government might scrap the changes.

In any case, these discussions highlight just how important careful estate planning has become. If you are unsure how potential changes might affect you or your family, contact our Private Client Team today and we will be happy to talk through your estate planning options and help you plan with confidence.