Inheritance Tax Gift Clampdown Could Make UK Hostile To Wealthy Residents

Proposals to restrict the ability of parents to make unlimited tax-free gifts to their children could render the United Kingdom a difficult environment for wealthy individuals, tax specialists have warned. The Treasury is reportedly evaluating measures that would tighten the rules on gifting assets and money, aiming to address the fiscal gap ahead of the autumn budget.

The initiative has attracted strong criticism from Conservative leader Kemi Badenoch, who argued that Rachel Reeves, the Chancellor, is intent on taxing not only personal savings and property but also what is left to the next generation. Labour’s perceived inheritance tax “raid” is described as an attempt to cover “her failures” by taxing family legacies.

Richard Tice, deputy leader of Reform UK, renewed his party’s pledge to abolish the inheritance tax altogether, branding the current policy as “unnecessary pain for grieving families” and a deterrent to ambition and enterprise. Dan Neidle, head of Tax Policy Associates, commented that although clamping down on inheritance tax loopholes might appear rational in principle, the prospect of driving high-net-worth individuals out of the country poses a significant threat to the UK’s economic standing. Neidle noted that recent changes to inheritance tax and non-domiciled status have already unsettled the wealthy, with these new measures likely to compound the problem.

Neidle also highlighted the unpredictability of revenue from tighter gifting policies, since there is little reliable data on current gifting levels. The Office for Budget Responsibility is unlikely to offer a convincing yield estimate, creating an additional layer of uncertainty that the Treasury typically seeks to avoid.

David Sturrock from the Institute for Fiscal Studies added that unless the government is prepared to tax smaller gifts from middle-income households, it is unlikely to generate substantial sums from any inheritance tax reform. The Treasury is believed to be exploring alterations to the seven-year taper rule associated with gifts prior to death, but these are not expected to provide a significant revenue boost. Introducing a lifetime cap on tax-free gifts is under consideration, yet Sturrock indicated that the threshold would be required to be set low to yield substantive gains, given that 90 percent of the annual £14 billion in gifts fall below £20,000.

In practice, many of these gifts assist with housing deposits, and while recipients often have affluent parents, ordinary families also rely on such support. Imposing a cap may discourage lifetime gifting as a strategy to sidestep inheritance tax, but shifting the burden onto smaller gifts is highly unlikely to transform government finances without expanding the scope of taxed transfers.

Badenoch claimed Labour’s policy trajectory threatens the security of personal savings, pensions, and family homes, calling instead for cuts in state expenditure rather than increases in taxation. Tice’s position remains unequivocal, maintaining that inheritance tax should be abolished to reward hard work and keep family wealth intact for future generations. Reform UK estimates the abolition would cost the Treasury around £14 billion by the end of the current parliament.