Cash gifts could cost an extra 60% if the new Labour government was to adopt tax regimes similar to its European neighbours.

Currently, 63%1 of European countries charge a tax on gifts made in a lifetime. The UK isn’t one of them, with current rules allowing individuals to give away assets or cash up to £3,000 each tax year without it being added back onto the value of their estate for inheritance tax (IHT) purposes.

Changes to IHT have long been speculated and debated, but tax experts are also predicting the introduction of a tax on gifts to boost the coffers and create a new revenue stream for the UK public purse. Julia Rosenbloom said: “We can be certain that the government will be looking for ways to pay for critical services and a tax on lifetime gifts could be an answer to this.

“At present, you could gift someone a cash lump sum and not be hit with a tax bill. However, this isn’t the case in the majority of European countries. Although the Conservatives are historically a low tax party they have hit high earners and big corporates in the past five years. And while Labour has ruled out any form of wealth tax, this could be part of the party’s plan in an Autumn budget.”

Any gifts over the present £3,000 annual threshold are totted up as part of the donor’s estate as a potential IHT target, should they die within seven years of the gift being made.

IHT is currently payable at a rate of up to 40% to the extent the value of an estate exceeds an individual’s nil rate bands and any reliefs. If you live longer than seven years, however, there is zero tax on the gift, but a tax on gifts could reverse this completely.

Julia added: “If you look at other nearby European countries – for example the Republic of Ireland, The Netherlands, Germany and France – they all have a gift tax at substantial rates; it’s not out of the realms of possibility that the UK could follow suit.

“And, as interest rates rocket, and more people struggle to fund major life steps and turn to the help of loved ones to foot the bill – I expect gifts are at an all-time high.”

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Published: 28th June 2024
Area: Tax

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Julia is a chartered tax adviser, solicitor and trust & estate practitioner. She has a wide range of experience, advising clients from both a personal and corporate tax perspective.

Julia provides bespoke tax advice to a wide range of clients, including businesses and their stakeholders, real estate owners, trustees in both the UK and offshore, and high net worth individuals. She advises clients that are both UK and internationally based and has extensive cross-border tax experience. Having worked across the accountancy and legal sectors, Julia brings a distinctive insight to tax advice and planning, and approaches matters in a pragmatic and commercial manner. Julia has been named as “top recommended” in the Spear’s ranking of the best accountants and tax advisers.

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