Rachel Reeves's next inheritance tax raid will be her most pernicious yet

Telegraph

2 days ago

This is not a drill. Repeat, this is not a drill.
Sir Keir Starmer and Rachel Reeves are already planning to apply death taxes to pensions in 18 months' time including, it was revealed this week, on the estates of the poor souls who die prematurely before they are even able to spend their money.
Now, The Guardian, the Labour Party's newspaper of choice, is reporting that moves are afoot to curtail, or even cut off entirely, your ability to pass on money in your lifetime to avoid it being caught by inheritance tax when you're gone.
A well-placed source told The Guardian: '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.'
It is understood that ministers are considering reforming the so-called 'seven-year rule' that allows assets given away within seven years of death to be granted a lower rate of inheritance tax, compared to the usual 40pc.
Worse still, Reeves is also believed to be debating putting in a lifetime cap on the amount you can give away before death duties are due.
I'm not at all surprised to hear the Chancellor and her increasingly desperate Treasury ministers are hatching new ways to gobble up our pensions.
Despite stacks of evidence that wealth taxes won't work, a rump of Labour backbenchers and YouTube economists, such as Gary Stevenson, are convinced they are the answer to Britain's sickly public finances.
Severely curtailing how much money people can give away to their children tax-free is a wealth tax – but one that will capture middle-class families, not just the truly wealthy.
Since Reeves used her maiden Budget to announce that any money left in 'defined contribution' pensions would be brought into the inheritance tax net, savers have been accelerating the pace of the financial gifts they're handing to their descendants.
The Government says the tax raid will raise around £1.5bn a year by 2029-30. But it has probably underestimated families' determination not to hand over an extra penny to HMRC than they need to – hence this latest attempt to close off any remaining legitimate ways to avoid the tax.
While rumours so far are scant on detail, something that hasn't been mentioned is my favourite loophole: the 'gifts out of surplus income' rule. This allows unlimited sums to be handed down, so long as the gifts meet a stringent set of requirements (more details on how to qualify here).
It would not surprise me if this particular allowance is for the chop. While used by relatively few estates, it is simply too generous for the Chancellor to ignore.
My advice, as ever when it comes to inheritance tax, is not to delay any inheritances you were planning to make.
Not only does a lifetime gift mean you get to see your family enjoy it, but I think there is less chance of any changes to the inheritance tax regime being retrospective.
If you're not comfortable handing over large sums to your grandchildren, you can of course put the money directly into their junior Isas or pension accounts. A parent or grandparent can contribute up to £9,000 each year into an Isa, and up to £2,880 into a child's pension, regardless of the child's earnings.
The pension will then have tax relief added at the basic 20pc rate, meaning the contribution is actually £3,600 a year.
And there's another person who might welcome a lifetime gift: you. If you were considering that cruise or a big trip to Australia, now is the time to go for it.
The whole point of building up a retirement fund is to make your golden years comfortable. Treat yourself.