Wealthy parents ramp up gifts ahead of feared inheritance tax raid
Parents are locked in a race to organise financial gifts and inheritance tax arrangements ahead of an anticipated clampdown at next month’s Budget, with some advisers reporting a doubling of transactions in recent weeks.
Half a dozen lawyers and tax advisers told Morning Wire that the widely expected overhaul of gifting rules at the Budget has prompted a flurry of transfers from parents to their children that have included cash, shares in family businesses and even second homes.
“We’re carrying out more than double the number of gift-giving transactions for our clients than normal,” said Stephanie Tremain, a partner at tax consultancy Blick Rothenberg. “Everybody is asking the question, ‘Should I be doing something about it?’ The only people that aren’t, already have plans in place.”
As part of their efforts to plug a fiscal shortfall estimated at £30bn, ministers are said to be planning a major inheritance tax crackdown at next month’s Budget that will tighten the rules around gifts from parents to children and estates’ liability to capital gains tax.
Chancellor Rachel Reeves has vowed to use her eagerly anticipated speech to shake up the way the UK taxes wealth, with a mansion tax on homes worth more than £2m and an exit tax on people departing Britain with unrealised gains all rumoured to be under consideration.
Last month, she said that “those with the broadest shoulders” should pay their “fair share” of taxes, despite fears the government was presiding over an exodus of wealthy residents in response to a similar round of changes at last year’s Budget.
And in a Downing Street speech on Tuesday, Reeves is expected to say that at the November 26 Budget she “will make the choices necessary to deliver strong foundations for our economy – for this year, and years to come.
“It will be a budget led by this government’s values, of fairness and opportunity and focused squarely on the priorities of the British people:
“Protecting our NHS, reducing our national debt and improving the cost of living.”
‘A heck of a lot’ of inheritance tax gifting going on
Alexander Marcham, managing director at Alvarez and Marsal said his professional services firm was also seeing “a clear acceleration in wealth transfers” ahead of any decisions next month.
“Families are using existing reliefs while they still can, particularly through large gifts to children under the current ‘Potentially Exempt Transfer’ rules, which could be capped overnight,” he added.
Among the inheritance tax changes being considered is a cap on the total value of assets that parents can give away tax-free to their children regardless of when the transfer takes place. The government is also said to be weighing whether to increase the seven-year exemption period to a decade and end the so-called ‘rebasing’ rule, which resets capital gains tax liability on someone’s death.
“There’s a heck of a lot of gifting going on,” Joshua Ryan, a private client solicitor at Weightmans, said. “The main concern is the implementation of a gift tax similar to what you see in France or in the US – a limit on the overall amount you can give. The majority of what we’re doing here is gifting and trying to beat any risk on that front.”
Clients ‘punch drunk’ on speculation
Advisers also told Morning Wire that last year’s overhaul of Business Asset Disposal Relief – a decades-old carve-out that allowed family business owners to pass down their firms free from inheritance tax – was compounding the spurt in gift-giving. The change – which introduced a 20 per cent tax on family firms at the point of transfer, half the standard 40 per cent rate – is due to come into force next April.
James Quarmby, a founding partner of Stephenson Harwood’s private wealth practice, said his clients were still doing “a lot of planning in anticipation of” BADR coming to an end.
“If I’m a business owner and… I’ve got kids who are adults, I’m going to be making gifts now, because I’ve got 100 per cent relief on my shares. People are busy with that,” he said, adding: “My clients are punch drunk with the endless speculation. They’re like, ‘What fresh hell is it this weekend in the Sunday papers?’ They’ve become a bit numb.”