Inheritance Tax Raid Part III: HMRC’s Proposed Rule Change: What It Means for Family Gifts and Estate Planning
In a move that could reshape how families manage wealth transfers, HMRC is reportedly considering a rule change that would affect UK households who gift money to family members. While the details are still emerging, the implications for estate planning, inheritance tax (IHT), and financial advice are significant.
The Current Landscape
Under existing rules, individuals can gift up to £3,000 per year without triggering IHT. This annual exemption can be carried forward one year, allowing for a total of £6,000 if unused previously. Larger gifts are classified as Potentially Exempt Transfers (PETs), which become tax-free only if the donor survives seven years from the date of the gift.
This framework has long been a cornerstone of estate planning strategies, allowing families to pass on wealth while mitigating tax liabilities. However, HMRC’s proposed changes could tighten these allowances or introduce new reporting requirements—potentially increasing scrutiny and administrative burden.
Why the Change Matters
The rationale behind the proposed rule change appears to be twofold:
Preventing Tax Avoidance: HMRC is concerned that some households may be using gifts as a way to sidestep IHT obligations.
Improving Transparency: By requiring more detailed reporting, HMRC aims to ensure that gifts are properly documented and taxed where appropriate.
If implemented, these changes could affect common practices such as helping children with property deposits, funding education, or supporting elderly relatives.
What You Should Do Now
While the rule change is not yet confirmed, it’s a timely reminder to review your gifting strategy. Here are some practical steps:
Document All Gifts: Keep clear records of when, how much, and to whom gifts are made. This will simplify estate administration and support any claims for exemptions.
Use Allowances Wisely: Make full use of the £3,000 annual exemption and consider spreading larger gifts over multiple years.
Consider Trusts and Bonds: Instruments like offshore bonds or family investment companies may offer more structured ways to transfer wealth while retaining control and tax efficiency
Review Your Will and Powers of Attorney: Ensure your estate planning documents reflect your current wishes and take advantage of available tax efficiencies.
I have long advocated for proactive estate planning. As highlighted in many of my day to day client conversations, gifting strategies must balance generosity with compliance. Whether it’s helping a 96-year-old client simplify their affairs, or structuring a £40,000 transfer to minimise IHT exposure, my goal is to ensure that client wealth supports their family without unintended tax consequences.
If you’re considering making a gift or want to understand how these potential changes might affect your plans, please get in touch. I’m here to help you navigate the evolving landscape with clarity and confidence.
