Urgent warning to families ahead of possible Inheritance Tax change in budget

Chancellor Rachel Reeves is due to share Labour’s first Autumn Statement on October 30th, with many bracing for “painful” tax raids and changes after a warning from Sir Keir Starmer previously. However, RBC Brewin Dolphin wealth managers are reaching out to families with some urgent last-minute pieces of advice.

The Chancellor is expected to review the gifting policies in Inheritance Tax which many people use as a loophole to give away portions of their wealth tax-free in the years before their death. However, financial planner Carla Morris is concerned families will take unnecessary and potentially damaging action to mitigate this effect as she highlighted: “Inheritance tax is paid by a few but feared by all.”

She encouraged people to get financial advice before making any impulsive decisions ahead of the budget as she warned: “When talking to clients about gifting we always stress the importance of not giving away money that they might need in the future, especially towards any potential future care costs. Extending the seven-year period to 10 may well get people talking about their finances and gifting earlier but it also makes advice even more key because you are having to look even further into the future to ensure your own needs are met.”

The seven-year rule refers to gifts made seven years or more before death are exempt from Inheritance tax. If you die within the seven years, there is a tapered rate of tax ranging from 8% to 40% depending on how close to death the gift was made.

The expert highlighted that this seven-year rule already often surprises families in grief as they realise gifts their deceased loved one made years ago have now racked up a tax bill they need to pay. Extending it to 10 years could exacerbate this effect.

Carla continued: “A carefully considered lifetime gifting plan can ensure a client gets to see the positive difference they can make to their families lives and financial security, but it needs careful advice and managing, which could include life cover, trusts and definitely needs good record keeping. To ensure you can enjoy a long and comfortable retirement as well as help your family it is crucial to plan ahead and take advice.”