Legal News | 4.09.25
Inheritance tax and lifetime gifts: changes afoot?
Yesterday, HM Treasury announced that the Autumn Budget will take place on 26 November. Tax increases have been widely speculated and all eyes will be on further changes that the Government may make to the existing inheritance tax (“IHT”) rules. In particular, the current rules around lifetime gifting.
As it stands, lifetime gifting can be a very effective way of passing on wealth to future generations in an IHT-efficient way. Gifts made to other individuals that do not qualify for an immediate exemption are known as ‘potentially exempt transfers’ (“PETs”). PETs aren’t immediately chargeable to IHT but instead become subject to IHT if the donor (i.e. the person making the gift) fails to survive seven years from the date of the gift (a “failed PET”). If the donor does survive seven years, then the gift is fully exempt from IHT.
Indeed, an IHT saving is still possible where the donor survives for at least three years after making the gift. This relief, known as ‘taper relief’ serves to reduce the amount of IHT payable on the failed PET. The relief applies where the donor dies between three and seven years after making the gift and works by reducing the rate of IHT payable by 8% for each year after the third anniversary of the gift.
Several media reports have suggested that the Treasury may consider amending these rules in the upcoming Autumn Budget. This could involve changing the rates of ‘taper relief’ and/or the introduction of either an annual or lifetime cap on lifetime gifts for IHT purposes (something other countries, such as the US, have in some form).
Whilst it is impossible to say with any certainty what may form part of an upcoming Budget, if you have been considering making substantial lifetime gifts, now may be a good time to take stock and consider (with suitable advice) whether it is worth making those gifts prior to 26 November.
The Private Client team at Wansbroughs would be happy to help you understand your inheritance tax position as part of your wider estate planning. Please email us at wealth@wansbroughs.com or phone 01380 733 300 for further information.
