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Chancellor Rachel Reeves has faced criticism from financial consultants following reports that she may focus on tax-exempt family gifts in her upcoming inheritance tax (IHT) adjustments.
Wealth advisers and planners have labeled the suggestion “absurd” and a “clear cash grab” that could penalize grandparents who financially aid their children and grandchildren.
Currently, individuals are allowed to give up to £3,000 annually in gifts without incurring tax, plus certain exemptions for weddings and minor gifts of up to £250 per recipient. Larger transfers may escape IHT if the donor survives for seven years.
Nonetheless, reports suggest that the Treasury is pondering imposing limits or tightening these regulations as part of measures to address shortfalls in public finances before the Autumn Budget.
Scott Gallacher, director at Rowley Turton in Leicester, remarked: “I can’t imagine the Chancellor would be foolish enough to cap family gifts. The only outcome would be transforming grandparents into instant tax evaders, with cash gifts to children and grandchildren soaring to evade what many already consider an unjust tax.
“Currently, with an effective £1m allowance for couples with children, most individuals unnecessarily fret about IHT. However, with allowances locked in place, an increasing number of families will find themselves caught in the IHT trap in the coming years. My best advice is straightforward: spend it and enjoy while you can – and beyond that, seek professional financial guidance to ensure that what you wish to leave behind goes to your family, not the Chancellor.”
Benjamin Beck, founder of Beck Money Coach, cautioned that this action could intensify financial strains for young families.
“Family gifts can be crucial for many, aiding with education and home purchases. This will impact many, not just a select few – which is surprising given Labour’s motto,” he stated. “The optimal way to approach this is to plan ahead, understand the regulations, and fully utilize allowances, including the £3,000 yearly exemption and the seven-year rule as long as it remains in place.”
David Stirling, an independent financial adviser at Mint Wealth in Belfast, commented: “This is a blatant effort to tax the Bank of Mum and Dad, which countless individuals depend on for everyday expenses or to assist with deposits. Rachel Reeves is currently showing little restraint with IHT, property taxes, businesses, and pensions already facing penalties.”
Chartered financial planner Anita Wright of Ribble Wealth Management emphasized the necessity for meticulous planning should the regulations change.
She pointed out that under the present system, “regular gifts from income that do not impact the donor’s quality of life are instantly exempt from IHT – a regulation frequently overlooked.” She added that trusts, life insurance, and business relief could also play a significant role in long-term strategies.
“Any attempt to restrict gifts threatens to affect families precisely when intergenerational support is most crucial,” she stated. “This underscores the need for early succession planning and obtaining professional advice.”
The discussion surrounding inheritance tax emerges as the Chancellor strives to increase revenue while maintaining Labour’s commitment to assist working families. However, with the rising cost of living, stagnant IHT thresholds, and already-frozen allowances, advisers caution that middle-class families risk being ensnared deeper in the tax net.
For many, the possibility of losing the option to make modest, tax-free gifts may seem less like closing a loophole and more like penalizing families striving to support the next generation.
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