UK households have been advised to exercise caution ahead of a potential change to Inheritance Tax in the upcoming Autumn Budget from the Labour Party government. The Chancellor is reportedly considering extending the current “seven-year” rule, which allows gifts to be passed on tax-free, to 10 years.
However, economists from across the political spectrum and Treasury analysis suggest that this move would lead to increased administrative costs, which would lower the amount that could be raised for the Treasury. One expert stated that the change is “unlikely to raise additional revenues”.
Financial planner Carla Morris warned: “Inheritance tax is paid by a few but feared by all.
Maxwell Marlow, research director at the Adam Smith Institute, said: “Extending the time allowance from seven years to 10 is unlikely to raise additional revenues, as life expectancy amongst higher-income households continues to grow.
“Gift-givers will likely just grant gifts three years earlier than intended, thus nullifying the change.”
Currently, gifts made more than seven years before death are exempt from Inheritance Tax, but if the giver passes away within those seven years, their loved ones may face a significant tax bill, with rates ranging from 8% to 40%, depending on when the gift was given, reports Birmingham Live.
There’s speculation that this could be extended to 10 years. Carla advised: “A carefully considered lifetime gifting plan can ensure a client gets to see the positive difference they can make to their families lives and financial security, but it needs careful advice and managing, which could include life cover, trusts and definitely needs good record keeping.
“To ensure you can enjoy a long and comfortable retirement as well as help your family it is crucial to plan ahead and take advice.”
Former Tory MP John Stevenson, commented: “I would question whether this would raise any additional revenue of any consequence.”
“It would create new regulatory burdens because people would have to keep records of these gifts. Inheritance tax is already too complicated. This would make it worse when we should be looking to simplify it. We came up with the idea of a lifetime tax which would have eliminated all these requirements.”