The Treasury is reportedly exploring ways to increase revenue from inheritance tax in the run-up to the Autumn Budget.
According to sources speaking to The Guardian, officials have been asked to assess whether stricter rules on the gifting of money and assets could help narrow a projected budget shortfall, which is estimated to exceed £40bn.
Proposals under review include potential changes to how wealth can be passed on before death to reduce inheritance tax liabilities. One option being discussed is the introduction of a lifetime cap on gifting.
Currently, gifts made more than seven years before a person’s death are exempt from inheritance tax. Those given between three and seven years beforehand are subject to a tapered rate of tax, which falls each year from 32% to 8%.
A lifetime gifting cap would set a limit on the total value of money or assets an individual can transfer during their lifetime as part of inheritance planning. Treasury officials are also examining whether the taper rate should be revised.
In last year's Budget, the government announced plans to bring most unused pension funds and death benefits into scope of inheritance tax from 2027. The measure is expected to raise £1.46bn per year for the government by 2029/30.
Rachael Griffin, tax and financial planning expert at Quilter, commented: "Reports that the Treasury is considering a lifetime cap on the value of gifts a person can make before death without incurring inheritance tax (IHT) would represent a fundamental change to the way families pass on wealth. Such a cap would bring more gifts into scope for IHT and could capture not just large transfers designed to reduce tax bills but also modest, routine support between family members.
"More people are already being drawn into the IHT net due to frozen thresholds, rising property values and, from 2027, unused pensions being brought into scope. At the same time in recent years, the cost of living has squeezed household finances and families increasingly want and need to help each other financially. Quilter’s research shows UK retirees gift around £2,500 a year to loved ones, much of it to help with education and living costs.
"Introducing a lifetime cap would be a significant departure from current policy. The UK has never had such a limit, and if it were set too low it could affect a large number of middle-class estates, particularly in areas where property wealth alone can easily breach frozen thresholds. Tracking a lifetime cap could prove administratively complex, requiring HMRC to hold long-term records of gifts across decades and potentially leading to disputes where records are incomplete.
"There is also the risk of unintended behavioural shifts. A cap might encourage people to make large gifts earlier in life to use up their allowance, potentially moving significant assets out of their control before they are financially ready. Others might explore more structured planning options, such as trusts, which can offer greater flexibility and control over how assets are managed and distributed. While these arrangements may involve professional advice, they can also provide long-term benefits, including safeguarding wealth for future generations and ensuring that gifts align with broader financial and family goals. However, whether these could be utilised would depend on how the rules are set out if changed.
"If a lifetime cap is introduced, it must be designed in a way that recognises the positive role intergenerational transfers play in supporting younger generations. Without careful thresholds and exemptions, a cap risks discouraging these transfers, limiting the flow of wealth through the economy, and unfairly penalising families who make regular small gifts over many years.
"Any review of gifting rules should be considered alongside the outdated gifting allowances, which have been frozen for over 40 years. Reform should be proportionate and targeted at genuine avoidance, while ensuring families can continue to provide support without fear that normal acts of generosity will be swept into the IHT net. The Office of Tax Simplification has previously recommended shortening the gifting window from seven years to five and abolishing taper relief to make the system simpler. A lifetime cap could move in the opposite direction, adding complexity at a time when simplification is sorely needed."
James Ward, head of the private client practice at law firm Kingsley Napley, said: "If Rachel Reeves introduces a lifetime cap on the amount of money that can be gifted during a person’s lifetime, the options she has is either to have a yearly cap, i.e. £X amount can be gifted per year before gifting tax is charged, or a lifetime cap, so a number that can be gifted over a person’s life time.
"Clearly she is trying to increase the tax take on the trillion pound handover of assets from the baby boomers, however there are potentially a number of unintended consequences such an approach could give.
"In my experience, the younger generation have come to rely on the bank of Mum and Dad heavily and with the costs of living and housing at a record high, this reliance is increasing. If suddenly this gifting becomes taxable, then the money available to the next generation will decrease and this may have a negative impact on the property market and number of property transactions, which in turn will have an impact on other taxes.
"It will also be very difficult to police a cap concept and will create a challenge for HMRC and a substantial amount of extra paperwork. I can forsee that a number of people could find their way around this by gifting items or contributing to large expenditure and not reporting it. So query how effective any new rules will be. Also individuals could simply lend the money now and wait until Labour is voted out and the rules are reversed then turn the sums into gifts.
"The US have a gifting tax but they also have a very high nil rate band where there is no estate duty on death. The UK is in danger of having the worst of both worlds. Limited gifting and a low nil rate band threshold. For clients with substantial wealth to pass on, it's possible they could leave the country in order to make giftings and to prevent them losing 40% of their wealth on death. This scenario would clearly not be good for the UK."
Stephen Atkinson, global head of sales at Utmost Wealth Solutions, added: “Inheritance tax is already expected to paid on nearly 1 in 10 deaths by the end of this decade as reforms announced at last year’s Budget tightened longstanding reforms. The tax has raised record sums for the past four years as more estates are pulled into the net and face higher liabilities.
“Ultimately, while the Chancellor is clearly keen to explore all available revenue-raising options, these reforms and continued uncertainty over the future direction of travel are making the UK increasingly less attractive from a wealth perspective.
“We have seen many high-net-worths and non-doms leave the UK in the last year and any further measures that make the UK less competitive as a destination for affluent families would likely accelerate this impact.
“At the same time, we have experienced strong and growing demand for financial advice with families seeking estate planning strategies to protect intergenerational wealth and avoid unintended tax consequences.”
