A stark inheritance tax warning has been issued with Labour Chancellor Rachel Reeves reportedly preparing to target an exemption that permits UK families to transfer unlimited sums without tax implications.
The Chancellor is understood to be examining a lesser-known provision that enables individuals to pass on vast amounts of wealth whilst avoiding tax obligations. Routine gifts from surplus earnings can be instantly exempt from inheritance tax.
Transfers between married couples are typically exempt, though there exists a restricted spousal exemption for gifts to partners who have resided in the UK for fewer than 10 years within the preceding two decades.
Under HMRC regulations, gifts must constitute part of regular expenditure and originate from income. Tax authority guidance stipulates that donors must retain sufficient earnings to sustain their customary lifestyle.
For qualification purposes, the gifts must derive from earnings rather than accumulated savings, and require regular distribution as component of an individual’s routine spending patterns, reports Birmingham Live.
Sean McCann, , explained: “Currently, if you make regular gifts there’s no restriction on how much you can give away immediately free from inheritance tax, provided it is out of your income and doesn’t impact your normal standard of living.”
He suggested this arrangement “is likely to be in the chancellor’s sights in the forthcoming budget.” Mr McCann further noted: “Gifts made on a regular basis such as annually or more frequently are more likely to satisfy the test.
“The first gift in a series can qualify even if you die shortly after making it, provided there is evidence that further regular gifts were planned.
“For this reason, it’s a good idea to send your loved ones a note with the first gift confirming your intention to gift regularly and keep a copy with your will.”
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