Chancellor Rachel Reeves has come under fire from financial advisers after reports suggested she may target tax-free family gifts in her latest inheritance tax (IHT) reforms.
Wealth managers and planners have branded the proposal “daft” and a “blatant tax grab” that risks punishing grandparents who financially support their children and grandchildren.
At present, individuals can give up to £3,000 a year in gifts tax-free, with additional exemptions for weddings and small gifts of up to £250 per person. Larger transfers can also fall outside IHT if the donor survives for seven years.
However, reports indicate that the Treasury is considering capping or tightening these rules as part of efforts to plug gaps in the public finances ahead of the Autumn Budget.
Scott Gallacher, director at Leicester-based Rowley Turton, said: “I can’t believe the Chancellor would be daft enough to cap family gifts. All it would achieve is turning grandparents into overnight tax evaders, with cash gifts to children and grandchildren rocketing to avoid what many already see as an unfair tax.
“At present, with an effective £1m allowance for a married couple with children, most people worry unnecessarily about IHT. But with frozen allowances, more and more families will be dragged into the IHT net in the years ahead. My best advice is simple: spend it and enjoy yourself while you can – and beyond that, get proper financial advice to make sure what you want to pass on goes to your family, not the Chancellor.”
Benjamin Beck, founder of Beck Money Coach, warned the move could worsen financial pressures for young families.
“Family gifts can be a lifeline for many, from education to getting on the property ladder. This will affect the many, not just the few – which is surprising considering Labour’s slogan,” he said. “The best way to deal with this is to plan early, know the rules and make full use of allowances, including the £3,000 annual exemption and the seven-year rule while it lasts.”
David Stirling, an independent financial adviser at Belfast-based Mint Wealth, said: “This is a blatant attempt to tax the Bank of Mum and Dad, which so many people rely on for day-to-day living costs or to help with deposits. There isn’t much Rachel Reeves is leaving off the table now with IHT, property taxes, business and pensions already being punished.”
Chartered financial planner Anita Wright of Ribble Wealth Management stressed the importance of careful planning if the rules change.
She noted that under the current framework, “regular gifts out of income that do not affect the donor’s standard of living are immediately outside of IHT – a rule often underutilised.” She added that trusts, life insurance and business relief can also play a role in long-term strategies.
“Any move to clamp down on gifts risks hitting families at the very moment when intergenerational support is most vital,” she said. “This only highlights the importance of starting succession planning early and taking professional advice.”
The debate over inheritance tax comes as the Chancellor looks to raise revenue while balancing Labour’s promise to support working families. But with rising costs of living, stagnant IHT thresholds and already-frozen allowances, advisers warn that middle-class families risk being dragged deeper into the tax net.
For many, the prospect of losing the ability to make modest, tax-free gifts may feel less like closing a loophole and more like punishing families trying to support the next generation.