QUESTION: I’ve been reading speculation that the UK Government might limit the amount of lifetime gifts I can make to my children before inheritance tax (IHT) becomes due. Should I consider gifting cash or assets to my family before the Budget is announced?
ANSWER: It is understandable that this kind of speculation makes people stop and think about their estate planning. Every time a Budget approaches, there is a flurry of headlines suggesting changes to inheritance tax and the rules around lifetime gifting.
However, the truth is that until the Chancellor stands up and delivers the Budget, no one can say for certain what changes will actually be made.
Financial professionals often remind clients that “the tax tail shouldn’t wag the dog,” meaning it is unwise to make significant financial decisions based solely on what might happen to tax rules.
Your personal circumstances, financial needs, and long-term goals should come first. That said, if you have sizeable cash reserves or business assets, it may be worth considering whether transferring some wealth now, before any potential rule changes, fits with your overall estate and succession plans.
Under current rules, outright gifts made to individuals are treated as “potentially exempt transfers.” In simple terms, no inheritance tax is due at the time of the gift, but the donor must survive for seven years for the value to fall completely outside their estate for IHT purposes.
Starting that seven-year clock sooner can be advantageous, particularly if you are confident that you can afford to give the money away without impacting your own financial security.
However, it is important to remember that once you make a genuine gift, it is no longer yours to reclaim. You are giving it up for good.
If, after the Budget, the rules turn out to be more generous than feared, there is no mechanism for reversing a gift simply because you have changed your mind.
The same applies if your financial circumstances alter in the future; once the asset or cash has been transferred, it belongs to the recipient.
For those with business assets, additional complexities arise, as Business Relief can in some cases reduce or eliminate IHT exposure.
Transferring ownership or shares should therefore be carefully planned to ensure you do not inadvertently lose valuable reliefs or create unexpected tax liabilities.
In short, while it may be tempting to act quickly in anticipation of potential rule changes, this is an area where caution is essential.
Do nothing without seeking tailored advice from your tax adviser and independent financial adviser.
They can help assess whether gifting now is appropriate for your situation, ensure it is structured correctly, and confirm that you can comfortably afford to make the gift.
Mark McCluskey, senior tax manager at AAB Group Accountants
Speculation may come and go, but sound tax planning remains the same: act based on what you know today and what makes sense for your circumstances, not what might happen tomorrow.
- Mark McCluskey (mark.mccluskey@aabgroup.com) is senior tax manager at AAB Group Accountants (www.aabgroup.com). The advice in this column is specific to the facts surrounding the question posed. Neither the Irish News nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies