Budget plans could take Britain back to the 1970s, warns tax expert
A leading tax expert has warned that rumoured changes to Inheritance Tax (IHT) as part of Labour’s Autumn Budget could stifle wealth transfer and economic growth.
Speculation suggests Rachel Reeves could introduce a lifetime allowance on gifting, with some suggesting a lifetime cap in the region of £1m, in a move that could dramatically impact estate planning.
Currently, individuals can make unlimited tax-free gifts of certain assets, where they are either not subject to capital gains tax (CGT) or there is a relief to hold over any capital gain during their lifetime, provided they survive seven years from making the gift.
This flexibility has allowed families to pass on wealth without the heavy burden of IHT, which is charged at 40% on estates exceeding the £325,000 threshold. However, with the possibility of a lifetime allowance on gifts and CGT reliefs being tempered, this window of opportunity may close following the chancellor’s announcements on 30 October.
Robert Wardle, partner and head of tax for the North West region at UK top ten accountancy and advisory firm Azets, warned that the introduction of a lifetime allowance and limit on CGT reliefs could severely restrict how much individuals can transfer assets without incurring a tax liability.
He said: “Clearly, we are speculating but we know that the government needs to raise funds and this would be one way to do it, together with changes to capital gains rates and removal of reliefs which are needed to relieve capital gains on certain gifts. Each of these suggestions could impact the ability to pass on assets in a tax efficient manner to the next generation.
“With rumours around the introduction of a lifetime allowance on gifting and the suggestion of a lifetime cap of £1m, we hope this does not signal a return to the punitive tax regime of the 1970s, when marginal tax rates reached up to 83% on earned income and 98% on investment income.
Robert is advising those considering making significant gifts to loved ones to act now and to seek tax advice on the options available under the current rules, ahead of any potential changes.
He added: “There is still time – likely up until the day before the Budget on 30 October – to make tax-efficient gifts under the current regime. After that, any changes could be announced with immediate effect, leaving families and individuals exposed to new limits and tax liabilities.
“I urge individuals to review their estate planning strategies now and seek advice while they can still make the most of the current IHT rules as we may see a radical change to how estates are managed, potentially leading to larger IHT bills down the line. Waiting until the chancellor’s Budget speech could mean missing out on vital opportunities to protect your assets.”
