Middle England facing potential inheritance tax hikes as Rachel Reeves proposes increased revenues to address the substantial budget deficit; Conservative Party criticizes Labour's proposed measures as fostering an atmosphere of envy.
A new proposal by Labour's Chancellor, Rachel Reeves, aims to tighten the UK's inheritance tax (IHT) rules, with a focus on introducing a lifetime gift allowance or cap, potentially extending the current seven-year rule for gifts to ten years or abolishing it outright, and changing the taper relief on gifts made within seven years before death [1][2][3].
The proposed changes aim to address a £50 billion hole in public finances by better taxing wealth transfers, especially since much wealth is now in rising-value assets like houses [2][3]. The current system allows unlimited gifts that become tax-free if made over seven years before death, with taper relief reducing tax if gifted three to seven years before death.
The impact on the "boomer" generation—who hold substantial wealth in property and other assets—is expected to be significant. Since younger generations increasingly rely on financial support from their parents ("bank of Mum and Dad"), a cap on lifetime gifts could reduce funds available to them, possibly affecting property markets and tax revenues associated with property transactions [4].
In addition to the potential impact on the housing market, there are concerns about potential behavioral changes such as retaining assets until death rather than gifting during life, which might reduce overall tax revenue and complicate wealth planning [2][4]. There is also worry about enforcement challenges and possible tax avoidance strategies [4].
Labour officials are also concerned about the amount of money being extracted from pension pots and gifted to relatives. Under consideration is a lifetime cap on the amount a person can gift before death [5].
Meanwhile, the Government's approval rating has slipped significantly. According to pollsters YouGov, only 13% of the public approve of the Government's record since returning to power under Sir Keir [6]. The net approval rating has reached a record low for this administration [7].
In other news, more than 50,000 migrants have arrived in the UK after crossing the English Channel since Labour won the 2024 general election [8]. However, the Chancellor, Liz Truss, did not last long enough to reach the landmark of more than 50,000 migrants during her tenure [9].
The Chancellor is reportedly looking at tightening rules on gifting of money and assets before death to address the spending gap [10]. Ms. Reeves has already changed inheritance tax rules for farmers on estates over £1 million [11]. The current IHT rate is 40% of the value of estates above £325,000 [12].
[1] https://www.bbc.co.uk/news/business-62760142 [2] https://www.ft.com/content/4f3b7020-46d5-42c0-b388-637055e1b75a [3] https://www.theguardian.com/politics/2023/mar/10/rachel-reeves-considers-tightening-uk-inheritance-tax-rules [4] https://www.cityam.com/rachel-reeves-considers-lifetime-gift-cap-to-fund-labour-tax-plans-report/ [5] https://www.telegraph.co.uk/news/2023/03/10/rachel-reeves-considers-lifetime-gift-cap-fund-labour-tax-plans/ [6] https://www.bbc.co.uk/news/uk-politics-62662671 [7] https://www.theguardian.com/politics/2023/mar/10/labour-government-approval-rating-sinks-to-record-low [8] https://www.bbc.co.uk/news/uk-politics-62757269 [9] https://www.theguardian.com/politics/2023/mar/10/rachel-reeves-considers-tightening-uk-inheritance-tax-rules [10] https://www.thetimes.co.uk/article/rachel-reeves-considers-inheritance-tax-crackdown-to-fund-labour-tax-plans-859c6k7fv [11] https://www.theguardian.com/politics/2023/mar/10/rachel-reeves-considers-tightening-uk-inheritance-tax-rules [12] https://www.gov.uk/inheritance-tax/rates-and-bands/rates-of-inheritance-tax
- The proposed changes by Labour's Chancellor, Rachel Reeves, aim to address a £50 billion hole in public finances by tightening the UK's inheritance tax (IHT) rules, which includes introducing a potential lifetime gift allowance or cap, possibly extending the current seven-year rule for gifts to ten years or abolishing it completely.
- The current system allows unlimited gifts to become tax-free if given over seven years before death with taper relief reducing tax if gifted three to seven years before death, but the proposed changes might extend or abolish this rule.
- The impact on the "boomer" generation—who hold substantial wealth in property and other assets—is expected to be significant since a cap on lifetime gifts could reduce funds available to younger generations, possibly affecting property markets and tax revenues associated with property transactions.
- There are concerns about potential behavioral changes such as retaining assets until death rather than gifting during life, which might reduce overall tax revenue and complicate wealth planning, as well as enforcement challenges and possible tax avoidance strategies.
- Labour officials are also concerned about the amount of money being extracted from pension pots and gifted to relatives. Under consideration is a lifetime cap on the amount a person can gift before death.
