Government considers further Inheritance tax grab

New regulations being considered could restrict the ability of parents to make unlimited tax-free gifts to their children. If the rumours are true, these regulations will be announced during the upcoming autumn Budget on 26 November.  

The Treasury is reportedly looking at introducing a lifetime cap on the value of gifts an individual can give away to reduce their inheritance tax liability. This move, along with potential changes to capital gains tax, is said to be under consideration by Chancellor Rachel Reeves as she seeks to address a potential fiscal deficit ‘black hole’ of up to £50 billion in the upcoming autumn Budget.

Currently, an unlimited amount of money and assets can be gifted to friends and relatives without incurring inheritance tax, under the condition that the transfer happens at least seven years before the person giving the gift passes away. This is known as the ‘7 year rule in inheritance tax’.

In short, a ‘taper tax rate’ of between 8% and 32% 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%.

Essentially, the proposed lifetime cap on gifts would enable the Treasury to exercise yet another avenue of tax collection from gifts given by parents to children many years earlier than before.  

There have also been rumours that the 7 year rule could be extended to 10 years, in a further bid to increase tax take.

What is inheritance tax?

Inheritance Tax (IHT) is a tax levied by the Government on the estate of a deceased person in the UK. This includes all of their assets including property, personal belongings and investments.  

However, this levy only applies to the total value of the estate that exceeds the IHT threshold or ‘nil-rate band’. As of the 2025/26 tax year, the threshold is set at £325,000. Anything above £325,000 could be subject to up to 40% inheritance tax and anything below this threshold is tax-free. Those passing down their main residence to direct descendants also have an additional allowance of £175,000. This means up to £500,000 per person or £1million for a married couple, can currently be passed down free of inheritance tax.

Currently, pensions are exempt from inheritance tax but from April 2027, pensions will form part of your estate for inheritance tax purposes. This means that after April 2027, inheritance tax may also need to be paid on your pension when you die (depending on the overall taxable value of your estate). 

If you’re interested in how to manage the potential inheritance tax bill on your estate, to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our experienced team to find out more.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice.