Families face fresh inheritance tax grab

Telegraph

2 days ago

Parents may be prevented from making unlimited tax-free gifts to their children under a proposed tightening of inheritance tax rules.
The Treasury is considering a lifetime cap on the value of gifts that someone can pass on before they die in order to reduce their eventual inheritance tax bill.
The Chancellor is also thought to be considering potential changes to capital gains tax in another attempt to target wealth.
It comes as Rachel Reeves battles a black hole of up to £50bn in this autumn's Budget.
Sir Mel Stride, the Conservative shadow chancellor, said: 'Those who have worked hard, saved and want to pass something on to their loved ones shouldn't be punished by yet more taxes from Labour.
'Tax rises are coming to paper over the cracks of the Chancellor's economic mismanagement. Nothing is safe under Labour: not your job, your business, your farm, your savings or your pension.
'Rachel Reeves is taxing your family's future to fund her failure.'
At present, unlimited amounts of money and assets can be gifted to friends and relatives without paying any eventual inheritance tax, as long as the transfer happens at least seven years before the person giving the gift dies.
A so-called taper tax rate of between 8 and 32 per cent is applied to gifts given between seven and three years before death. Money given less than three years before is taxed at the full inheritance tax rate of 40 per cent.
A lifetime cap on gifts would allow the Treasury to raid funds given from parents to children many years earlier, in an effort to boost the tax take. Changes to the taper rate are also being considered, according to the Guardian, which first reported the story.
A source told the newspaper: 'With so much wealth stored in assets like houses that have shot up in value, we have to find ways to better tap into the inheritances of those who can afford to contribute more.'
Ms Reeves is also said to be examining an increase in the capital gains tax rate, following an initial raid last year. This is likely to be accompanied by an allowance for people who invest in British businesses.
The amount of money raised from inheritance tax has more than doubled to £7.5bn a year over the past decade, fuelled in part by a long boom in property prices. The Office for Budget Responsibility expects it to hit £14.3bn by 2030.
Labour has already taken action against farmers and business owners by ending exemptions for their property when they die – the latest in a series of moves to expand the duty, which also included a raid by Gordon Brown on trusts in 2006.
By contrast, the Tories have long sought to cut the tax. David Cameron vowed to raise the thresholds at which it would apply while in opposition, and as chancellor George Osborne exempted homes worth up to £1m. During the last general election campaign, Jeremy Hunt, the former chancellor, told The Telegraph that he would like to scrap the tax entirely.
Treasury figures have consistently warned that hard decisions on tax changes are likely to come in the weeks running up to the Budget, when economic forecasts are clearer.
A string of Left-leaning think tanks, trade unions and Labour MPs are likely to push proposals for tax rises in meetings with Treasury officials and ministers.
Reeves 'laying groundwork for tax rises'
Number 11 is plotting a series of interventions between now and Budget day, laying the groundwork for tax rises to prepare the public and the markets for what is coming.
On current economic forecasts, Ms Reeves needs to raise tens of billions of pounds a year to hit her so-called 'fiscal rules' for controlling debt.
The National Institute of Economic and Social Research, a think tank, put the figure at £40bn a year. Restoring her existing fiscal headroom would need another £10bn.
Other think tanks have suggested lower figures and Treasury sources stress the forecasts could yet change. There is, however, a growing expectation of major tax rises in some form.
Labour has promised not to increase income tax, National Insurance on workers, VAT and the rate of corporation tax, as well as a looser pledge of no tax rises for 'working people'.
It means that higher taxes on wealth are being explored. Ms Reeves has long been opposed to a new standalone wealth tax. She ruled out the move in The Telegraph in April.
However, in opposition, Ms Reeves advocated increases in capital gains tax rates and since taking office has tightened rules on wealthy 'non-doms' who spend time in the UK but are based abroad.
A Treasury spokesman said: 'The best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn.
'We are committed to keeping taxes for working people as low as possible, which is why at last autumn's Budget, we protected working people's payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance or VAT.'