Chancellor Rachel Reeves is believed to be considering changes to the way inheritance tax works, including on gifts made during your lifetime
Labour may announce major changes to inheritance tax in the Autumn Budget including the rules on gifts made to family members during your lifetime(Image: coldsnowstorm via Getty Images)
Chancellor Rachel Reeves is set to deliver the Autumn Budget on November 26, and there are huge expectations that tax rises will be included.
Labour’s manifesto pledged not to raise income tax, VAT, National Insurance, or corporation tax rates – though the party did increase employer NI contributions.
The Government may target other forms of tax in the Budget, and rumours are already swirling about potential changes to inheritance tax. This could mean there isn’t much time for families to make any changes to their financial plans.
READ MORE:
Traditionally, inheritance has meant passing wealth on after death, but with mounting economic pressures and the prospect of tighter tax rules, many families are now choosing to support their children during their lifetime instead through gifting.
Alex Chambers, senior mortgage broker at Clifton Private Finance, has shared key advice on the option of handing over cash assets while you’re alive and how HMRC deals with it.
She said: “Unlike traditional inheritance, this strategy allows families to legally sidestep inheritance tax by passing on wealth as gifts during their lifetime.
“Instead of leaving everything to the next generation after death, more people are choosing to pass money on while they’re still alive. This approach, often called ‘living inheritance’, allows families to make a meaningful difference now, particularly as younger generations face high housing costs and rising living expenses.”
How inheritance tax and gifting work now
In the UK, inheritance tax (IHT) is charged at 40 per cent on estates above certain thresholds. Individuals have a £325,000 nil-rate band, with an additional £175,000 residence allowance if passing on the family home to direct descendants.
Alex explained: “This is where living inheritance comes in. By gifting assets or cash while alive, parents can reduce the size of their estate and potentially avoid such a heavy tax bill.
“Under the seven-year rule, gifts are fully exempt from IHT if the donor survives for seven years. If they die sooner, taper relief can reduce the tax owed after three years. There are also smaller annual allowances that are immediately tax-free.
“The benefits are twofold: parents reduce their IHT exposure, and children receive financial support when they need it most, whether that’s getting on the property ladder, starting a business, or funding education.”
She added: “We’re seeing more parents and grandparents choosing to pass on wealth during their lifetimes, whether it’s through gifted deposits or releasing equity from the family home to pass on early.
“Rising house prices and pressures in the property market mean support is often needed sooner rather than later. Parents would rather see their children benefit today than wait until it’s too late.”
Proposed Inheritance Tax changes
“With the Autumn Budget looming, speculation is mounting around major changes to inheritance tax. Families may need to rethink how and when they pass on wealth,” Alex said.
Reports suggest the Government could propose:
Extending the seven-year gift rule to ten yearsIntroducing a lifetime cap on gifts exempt from IHT (currently, no cap exists if the donor survives seven years)Tightening reliefs for business and agricultural assets: changes from April 2026 could mean farms and businesses worth £1 million face IHT for the first time
“For families considering passing on wealth, the message is clear: the earlier you take advice, the more options you’re likely to have.”
Planning ahead: What families should consider
For those thinking about living inheritance, professional financial advice is critical, especially as potential changes loom. Key points include:
Understand the rules: Gifts can be IHT-exempt if the donor survives seven years. Taper relief may apply otherwise.Avoid ‘gifts with reservation’: If you gift an asset but still benefit from it (e.g. live in a gifted home rent-free), HMRC will treat it as part of your estate.Use your allowances: Annual gift allowances and small exemptions can reduce your IHT exposure without triggering tax.Plan for your own needs: Ensure you retain enough wealth to cover your retirement and care costs.Be fair: Consider how gifts are balanced among children to avoid resentment or confusion later.
Alex concludes: “With inheritance tax projected to raise over £14 billion by 2030, early planning has never been more important. Whether through making gifts, reviewing pension strategies, or simply keeping estate values under review, early and careful planning is essential.”
Get breaking news on BirminghamLive WhatsApp. Join our dedicated community for the latest updates sent straight to your phone as they happen.
You can find out more about cost-of-living issues in our Money Saving Newsletter, which is sent out daily via email with all the updates you need to know on pensions, PIP, Universal Credit, benefits, finances, bills, and shopping discounts. Get the top stories in your inbox to browse through at a time that suits you.