Critics have called it an ‘an absolute cash cow’ for the Government
Brits who have gifted money to family members in the past seven years have been warned that they could be liable for inheritance tax. According to HMRC, inheritance tax receipts have soared to £5 billion in the seven months from April to October 2024.
Alex Davies, CEO and Founder of Wealth Club, said: “Inheritance tax was already an absolute cash cow for the Government. The extreme changes announced in last month’s Budget, which badly affect farmers, business owners, pension policyholders and investors, mean these figures are only going to increase over the coming years.
“We believe all the changes to inheritance tax made in the Budget are extremely short-sighted. Firstly, the tax burden is already at its highest in 70 years and growth is very low. More tax is likely to stifle growth further. Secondly these changes have given those affected no time to plan.
“It’s very much a case of “one day, that’s your money, the next day, it’s not”; a sentiment which is hardly going to encourage people to invest for the future whether that’s in their own business or in a savings vehicle such as a pension.
“That said you can only base your decisions on the facts as they are now and seemingly there are still ways available to reduce the inheritance tax paid by your estate, although many of them do require time and more risk.”
One way to avoid inheritance tax is by gifting money. Yorkshire Live reports that the timing of the gift is crucial to ensure it is tax-free.
Essentially, if you live for more than seven years after giving this gift, your children or relatives will not have to pay Inheritance Tax on your gift when you pass away. However, any income or gains from this gift could incur taxes for the recipient, such as Capital Gains Tax.
But if you do not live for more than seven years after giving the gift, they may have to pay Inheritance Tax. Initially, when the gift is given, it’s called a Potentially Exempt Transfer because, assuming you survive for another seven years, there will not be any Inheritance Tax due on it.
If you die within seven years, it is known as a Chargeable Transfer. You can also give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate.
This is known as your ‘annual exemption’. You can give gifts or money up to £3,000 to one person or split the £3,000 between several people.
