A step too far?
Under the current regime, the threshold above which Inheritance Tax is paid, depending on the exact circumstances, is £475,000 (or £950,000 for married couples or civil partners). Any value above this is taxed at 40%.
The proposals being considered by Labour would replace Inheritance Tax with a Lifetime Gifts Tax under which everything a recipient receives above £125,000 would be taxed annually at income tax rates. This would mean that a family with two children would only be able to pass on £250,000 to their children tax-free during their lifetime or on death.
Any such changes would significantly increase the number of people caught by the tax (in March, according to government figures, the average house price was £226,798) and it is estimated that taxing gifts through the income tax system could raise £9.2 million more than the current system.
An independent review of Inheritance Tax and its administrative process is currently being conducted by the Office of Tax Simplification. During the consultation period, it received a huge response from both individuals and professionals highlighting the general feeling of discontent surrounding the tax.
It therefore seems very likely that there will be changes to the current regime over the next few years, whichever political party is in power, and so anyone looking to make gifts (and who can afford to do so without compromising their own standard of living) may be best advised to do so sooner rather than later in order to protect family wealth.