Inheritance Tax 7 Year Rule Could Be Extended to 10 Years

Concerns are growing in the finance industry that Rachel Reeves is going to need to raise yet again in the forthcoming Spring Statement (mini-Budget) in March.

Public sector borrowing is not going down but increasing with Reeves still comitted not to break her fiscal rules of borrowing more, so it in inevitable that public spending will be cut and taxes will rise.

It will be hard to hit businesses any further with the massive hike in National Living Wage increases, wage rise in general to support that, increased employers national insurance constributions (NIC) and associated pension contribution costs.  Therefore, it may be about taxing the ‘lowest hanging fruit’.

More capital gains tax increases after the last round of increases.

Inheritance tax increases have already been confirmed with the inlcusion of unused pension funds in the estate on death from April 2027.  Already, the financial services advice industry is talking to clients about accessing pension funds to make financial gifts rather than be taxed on death at 40%.  How can Mrs Reeves get a a piece of this?  The Inheritance Tax 7 Year Gifting Rule.

7 Year IHT Rule

We all have an annual gifting allowance of £3,000 (which can be £6,000 if you did not use last year’s exemption).  Any gifts over and above this to family and friends are fully outside the estate after 7 years.

Comment

• It would be so easy with more financial gifting and redistribution of wealth to come for the Chancellor to increase the 7 year limit to 10 years.
• The 7 year rule could even be abolished and a new ‘Lifetime Gifting Allowance’ be introduced but we suggest this would take time to raise revenue.
• Perhaps an Annual Gifting Limit that would qualify for the 7 year gifting rule and any gifts over that to pay say a lower ‘gift tax of say 10% or 20%. In a similar way that Chargeable Lifetime Transfers (gifts in excess of the £325,000 inheritance tax allowance to businesses or certain trusts) are taxed immediately at 20%. 
• Or even, all financial gifts in excess of £325,000 within the last 7 years pay Lifetime Transfer Tax at 20%.