HMRC rule change coming for UK households who gift family members money

The Chancellor is reportedly eyeing up a little-known exemption that allows people to pass on unlimited wealth without paying tax

An inheritance tax warning has been issued, with Labour Party government Rachel Reeves likely to target a “little-known” exemption that allows UK households to gift unlimited amounts tax-free.

The Chancellor is reportedly considering a seldom-known exemption that permits individuals to transfer unlimited wealth without incurring tax. Regular gifts of surplus income can be immediately exempt from IHT.

Gifts between spouses are typically exempt, but there is a limited spousal exemption for gifts to a spouse who has resided in the UK for less than 10 out of the previous 20 tax years.

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Under HMRC rules, gifts must form part of normal expenditure and must be made out of income. The donor must also retain enough income to maintain their usual standard of living, according to tax authority guidelines.

To qualify, the gifts must originate from income rather than savings, and they need to be made regularly as part of someone’s normal spending, reports Birmingham Live.

Sean McCann, chartered financial planner at NFU Mutual, stated: “Currently, if you make regular gifts there’s no restriction on how much you can give away immediately free from IHT, provided it is out of your income and doesn’t impact your normal standard of living.”

He further noted that this provision “is likely to be in the chancellor’s sights in the forthcoming budget.”

Mr McCann continued and added: “Gifts made on a regular basis such as annually or more frequently are more likely to satisfy the test.

“The first gift in a series can qualify even if you die shortly after making it, provided there is evidence that further regular gifts were planned.

“For this reason, it’s a good idea to send your loved ones a note with the first gift confirming your intention to gift regularly and keep a copy with your will.”

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