Inheritance tax rules could be set for a shake-up as the Chancellor is reportedly eyeing up a ‘little-known’ exemption that allows people to pass on unlimited wealth without paying tax
An inheritance tax alert has been issued(Image: Ippei Naoi via Getty Images)
An inheritance tax alert has been issued – with Labour Party Chancellor Rachel Reeves potentially set to target a “little-known” exemption allowing UK families to gift unlimited sums tax free.
The Chancellor is reportedly considering a lesser-known exemption that permits individuals to transfer unlimited wealth without incurring tax. Regular gifts from surplus income can be instantly exempt from IHT. Gifts between married couples will typically be exempt, though there exists a restricted spousal exemption for gifts to a partner who has been UK resident for fewer than 10 out of the preceding 20 tax years.
Gifts must constitute part of normal expenditure and must be made from income under HMRC regulations. The donor must retain sufficient income to maintain their customary standard of living, according to tax authority guidance, reports Birmingham Live. To qualify, the gifts must originate from income rather than savings, and they must be made regularly as part of someone’s ordinary spending.
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Sean McCann, chartered financial planner at NFU Mutual, said: “Currently, if you make regular gifts there’s no restriction on how much you can give away immediately free from IHT, provided it is out of your income and doesn’t impact your normal standard of living.”
He added that this provision “is likely to be in the chancellor’s sights in the forthcoming budget.” Mr McCann went on and also added: “Gifts made on a regular basis such as annually or more frequently are more likely to satisfy the test.
“The first gift in a series can qualify even if you die shortly after making it, provided there is evidence that further regular gifts were planned. For this reason, it’s a good idea to send your loved ones a note with the first gift confirming your intention to gift regularly and keep a copy with your will.”
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