Wealthy Britons gift more money over inheritance tax fears

Stay informed with free updates

Simply sign up UK tax myFT Digest – delivered straight to your inbox.

Rich Britons are increasingly giving money to family members as fears grow that Rachel Reeves could make the inheritance tax system more punitive, according to wealth managers.

Tax consultants told the Financial Times they had seen an increase in donations and inquiries about death duty relief since before the October Budget, when the Chancellor set out plans to introduce inheritance tax on pensions and farmland.

Reeves last month ruled out an emergency spring budget. But some analysts and advisers have warned that it may widen the inheritance tax net in an attempt to support the government’s financial plans.

These concerns have prompted more people to make financial gifts under the current system, which does not apply the 40 per cent IHT tax on gifts unless the donor dies within seven years.

“The seven-year rule is now up for grabs, and this appears to be the next target,” said Nimesh Shah, CEO of accounting firm Blake Rothenberg. “You can expand it to 10 years. Inheritance tax is now at the forefront of concerns.

The wealth manager is “seeing a lot of concern about where the government will target next” following its measures targeting pensions and farmers, said Olly Cheng, director of financial planning at Rathbones.

He added: “There is a feeling among a lot of people that further tax increases will be needed to balance the books, and the result of this uncertainty is that people are making gifts that may be given at a later date.”

Concerns about the IHT increase come even as the Government’s revenue from the tax continues to rise, with HM Revenue & Customs, the tax authority, collecting £6.3bn between April and December 2024.

The government collects less than 1 per cent of total revenue from death fees, but Reeves’ pledge during last year’s general election not to increase rates of income tax, National Insurance or VAT left it little room to maneuver to raise revenues.

Reeves this week signaled an easing of tax reforms on wealthy non-residents after warnings that her proposals were pushing people to leave Britain. But Shah said the changes “will not have any impact on the direction of IHT.”

Wealth managers said many of their clients faced the prospect of their estates falling within the scope of IHT over the next decade, with some attributing the increase in gifting to changes in HMRC’s treatment of pensions and farmland.

Unused pension pots will be included in estates from April 2027 and are subject to the standard IHT rate of 40 per cent. Meanwhile, from April 2026 landowners will be subject to a 20 per cent tax on agricultural land above a threshold of between £1.3 million and £3 million, depending on whether they are married and if they own a home.

Emma Stirland, principal financial planning director at Evelyn Partners, said reforms to pensions and land tax were behind a rise in “clients considering making financial gifts to their families”, with budget evidence that IHT was “in the Treasury’s crosshairs”.

Ian Cook, a chartered financial planner at Quilter Cheviot, said he was encouraging clients to “think about gifting more strategically” in light of upcoming pension tax reforms after more began “exploring ways to transfer wealth over their lifetime”.

The Treasury Department did not immediately respond to a request for comment.