Recent media reports suggest that the Treasury is considering introducing an annual or lifetime cap on gifts for IHT purposes, potentially also looking at taper rates following PETs. Commenting on the rumoured proposals, Hilesh Chavda, partner at Spencer West LLP, said: ‘Capping lifetime gifts could alter behaviour, potentially reducing overall tax revenue as individuals might retain assets in their estates, transferring them only upon death. This shift could significantly impact the economy and tax receipts. The effect of any cap on lifetime gifts largely depends on its design. A substantial cap, similar to the one in the US, might encourage long-term estate planning and facilitate the movement of assets.’
Hudda Morgan, partner the firm also noted: ‘In the UK we have a rule where true gifts often fall out of the inheritance tax calculation totally, provided the donor survives by seven years. In other countries this seven-year rule doesn’t apply. Instead, each person is given a total lifetime inheritance tax allowance, which can be used in lifetime or on death estate, but not both and there’s no “wiping the slate clean” after seven years.’
James Ward, Head of the Private Client Practice at Kingsley Napley said: ‘It will also be very difficult to police a cap concept and will create a challenge for HMRC and a substantial amount of extra paperwork. I can foresee that a number of people could find their way around this by gifting items or contributing to large expenditure and not reporting it, so query how effective any new rules will be. Also individuals could simply lend the money now and wait until Labour is voted out and the rules are reversed then turn the sums into gifts.
‘The US have a gifting tax but they also have a very high nil rate band where there is no estate duty on death. The UK is in danger of having the worst of both worlds. Limited gifting and a low nil rate band threshold.’
Recent media reports suggest that the Treasury is considering introducing an annual or lifetime cap on gifts for IHT purposes, potentially also looking at taper rates following PETs. Commenting on the rumoured proposals, Hilesh Chavda, partner at Spencer West LLP, said: ‘Capping lifetime gifts could alter behaviour, potentially reducing overall tax revenue as individuals might retain assets in their estates, transferring them only upon death. This shift could significantly impact the economy and tax receipts. The effect of any cap on lifetime gifts largely depends on its design. A substantial cap, similar to the one in the US, might encourage long-term estate planning and facilitate the movement of assets.’
Hudda Morgan, partner the firm also noted: ‘In the UK we have a rule where true gifts often fall out of the inheritance tax calculation totally, provided the donor survives by seven years. In other countries this seven-year rule doesn’t apply. Instead, each person is given a total lifetime inheritance tax allowance, which can be used in lifetime or on death estate, but not both and there’s no “wiping the slate clean” after seven years.’
James Ward, Head of the Private Client Practice at Kingsley Napley said: ‘It will also be very difficult to police a cap concept and will create a challenge for HMRC and a substantial amount of extra paperwork. I can foresee that a number of people could find their way around this by gifting items or contributing to large expenditure and not reporting it, so query how effective any new rules will be. Also individuals could simply lend the money now and wait until Labour is voted out and the rules are reversed then turn the sums into gifts.
‘The US have a gifting tax but they also have a very high nil rate band where there is no estate duty on death. The UK is in danger of having the worst of both worlds. Limited gifting and a low nil rate band threshold.’
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