Reeves sent £10k inheritance tax message before Spring Statement | Personal Finance | Finance
A major expansion to tax-free allowances for inheritance tax has been called for to provide people more ways to reduce their liability for the 40% levy.
Experts have been sharing their views on what changes there could be to the tax this week as Labour sets out its latest raft of policies in the Spring Statement (March 26).
Melissa Henderson, chartered financial planner at BRI Wealth Management, said the gifting allowances could be expanded, which are the limits within which you can give away gifts with nothing to pay on the amounts.
One such rule is that you can give away up to £3,000 divided between any number of people each tax year with nothing to pay on these gifts.
Ms Henderson said it’s about time this became more generous, noting: “The annual gifting allowance of £3,000 has not been increased since 1981 so it shows that it is well overdue an increase, perhaps in excess of £10,000.”
You can also give away any number of gifts up to the value of £250 to different individuals, as long as you haven’t gifted some cash to these same people using your other gifting allowances.
However, Ms Henderson also warned the gifting allowances could be made less generous, with the potential for a lifetime cap on the amount of gifts you can give.
She said that Rachel Reeves “might consider an overall gift allowance of £1million as an example, throughout lifetime or could be higher”.
She said this total limit to how much you can give away could include gifts out of income, as you can give away a gift out of your regular income of any amount.
You can also give away a gift of any amount, above the annual allowances, and this will potentially be exempt of inheritance tax, but you have to survive seven years for the amount to avoid a HMRC bill.
Ms Henderson mentioned previous movements towards changing the inheritance tax rules, saying: “There have been previous reviews into gifting and allowances from the Office of Tax simplification in 2019, but no further action has been taken.”
Another policy expert warning there could be changes to the gifting rules is Jessica Partridge, partner at law firm Mayo Wynne Baxter.
Sharing her predictions, she said: “We could see either increased tax or a shifting of the rules to bring gifts into account for say 10-15 years rather than seven and, as we have seen with Agricultural Property Relief and Business Property Relief, more inheritance tax reliefs being taken off the table.”
Labour announced major changes to inheritance tax last year with pensions to become liable for the levy, while more farming businesses will also be getting a HMRC bill.
Ms Partridge warned that given the economy has failed to grow as minister hoped it would, Chancellor Rachel Reeves has only the three unappealing options of “spending cuts, borrowing more or raising taxes”.
The legal expert also urged for more clarity on how pensions becoming subject to inheritance tax will work. This policy change will come in from April 2027.
She said: “The technical consultation which ended on 22 January states that “life policy products purchased with pension funds or alongside them as part of a pension package offered by an employer are not in scope of the changes”.
However, we are still unclear on whether this will extend to insured death on service benefits. We are also told that the pension administrators will be responsible for reporting and paying the tax due directly to HMRC.
“We are unaware of how this will work with the issuing of the grant of probate and whether it will create further delays or more complication.”
Another legal expert who wants to see more detail about how the inclusion of pensions will work is Hilesh Chavda, partner at law firm Spencer West LLP.
He said: “There is the big question of there being inheritance tax and income tax charges and more practically, how are the valuations going to work.
“If executors have to wait for pensions providers to give valuations, there are going to be significant delays to the administration process and releasing funds to pay tax and beneficiaries.”
HMRC was asked to clarify how the new rules will work. The authority said that when an estate is liable for the tax, the personal representative will have to complete an IHT account form IHT400 in order to obtain probate.
This account will include details of all of the property to which the deceased was beneficially entitled at their death, including their pensions, together with any lifetime gifts that have to be reported.
