Should there be a cap on inheritance tax-free gifts?

Times

a day ago

Property, cash or shares can be given away tax-free as long as you do it at least seven years before you die, but Rachel Reeves, the chancellor, is said to be considering imposing limits. Would it be fair to restrict the value of gifts someone can give, or receive? We hear opposing views.
Ben Cooper from the Fabian Society, a left-leaning think tank
Inheritance tax is fair. A lifetime cap on the value of gifts you can receive tax-free would make the system even fairer.
At the moment unearned inheritances and gifts go untaxed providing that they are bequeathed more than seven years before the giver's death. This means that someone can get an annual income of thousands of pounds tax-free without doing anything to earn it.
Parents' desire to support their children is understandable. In an emergency gifts from a relative can tide people over, or they can help the next generation onto the property ladder. But sensible reforms are needed to make the system fairer and to raise revenue. Even the US has a lifetime limit on tax-free gifts.
A person's success should come from hard work. The taxation system should favour income earned from work over income gained through luck or crafty financial planning. Yet the income of a care worker or shop assistant is taxed more heavily than the income of someone who gets regular gifts.
There should be equality of opportunity. Everyone should have a chance at success. Talent and dedication should be rewarded. And people shouldn't have more opportunities to succeed in life simply because of how rich their parents are. But large gifts are being used to buy access to opportunities such as internships or rent-free accommodation away from the family home that most of us cannot afford. Ordinary people miss out because their parents can't give them thousands of pounds each year. Rich families are putting a thumb on the scales, ensuring that our country works based on how much you can inherit, not how hard you work.
A lifetime limit on gifts would still allow parents to support their children, but it would make the system fairer. The Fabian Society and others have argued for a tax-free allowance. The Resolution Foundation, a think-tank focused on improving living standards for those on low-to-middle incomes, argued in favour of one person being able to receive a maximum of £125,000 from another person tax-free. That is more than double the average deposit (£61,000) paid by a first-time buyer in England last year, according to research by the bank Halifax. It would allow family members to support each other without conferring unfair opportunities on a few.
If you believe that success should depend on hard work and that Britain should be a country of equality of opportunity, a cap on lifetime tax-free gifts is essential.
Rachael Griffin, a tax expert at the wealth management firm Quilter
A lifetime cap on the value of gifts made before death without incurring inheritance tax would be one of the most radical changes in decades.
Supporters might argue that it would stop the very wealthy from avoiding inheritance tax entirely, boost government revenues and close perceived loopholes. However, the rules tackle high-value avoidance through limits on exemptions, the seven-year rule and the taxation of certain transfers to trusts.
The revenue raised from a cap is likely to be modest compared with the administrative burden of trying to police what would be a complex thing to track.
It comes as more people are paying more tax because of frozen thresholds, rising property values and, from 2027, pension pots being brought into the inheritance tax net. Meanwhile, the cost of living is squeezing households, with families increasingly needing to help each other out financially.
Quilter research shows that those in retirement give away about £2,500 a year to their loved ones, often for education or living costs. These are not tax-avoidance manoeuvres but regular acts of support. A lifetime cap would be a blunt instrument, sweeping up years of modest, regular giving alongside large transfers. It could deter people from helping younger generations when they need it most. And it may encourage the gifting of large sums earlier in life to 'use up' allowances, risking financial security in later life.
The inheritance tax rules are complex enough without adding restrictions. The gifting allowances have been unchanged for decades. There are rules for tax-efficient giving, which include a £3,000 annual exemption, a small-gift allowance of up to £250 per person per year, and wedding gift exemptions.
Larger gifts are tax-free if the donor lives for seven years after making the gift. Details remain light on how a lifetime cap would interact with these reliefs. A cap would add to the administrative burden faced by donors, executors and HM Revenue & Customs by increasing the need to provide a record of gifts over a lifetime.
If the aim is to ensure that the wealthy contribute fairly, the better path is to review and modernise exemptions, many frozen for more than 40 years, and target genuine tax avoidance.
A cap may grab headlines, but families should be able to plan with confidence, knowing that everyday acts of generosity will not be swept into the inheritance tax net.