Proposed policy would fundamentally change how wealth is transferred across generations
Concerns are growing about the possible introduction of a lifetime gifting cap by the government. This could significantly alter how wealth is passed down through generations, impacting not only large estates but also everyday family financial support. By bringing more gifts into the scope of Inheritance Tax (IHT), the proposed changes could complicate life for families who depend on regular financial assistance from loved ones.
The current IHT system already captures more estates as frozen thresholds lag behind rising house prices and, from 2027, unused pensions will also be included. With household finances strained by the cost of living crisis, intergenerational financial support has become an essential safety net. According to the research[1], UK retirees gift an average of £2,500 annually to family members, much of which goes towards essential costs such as education and living expenses.
Could modest families bear the greatest burden?
Unlike the current system, where gifts made more than seven years before death are exempt from IHT, a lifetime cap would regulate all gifts given during a person’s lifetime. If set too low, such a cap could unfairly affect ordinary families, especially in areas where property values often exceed the frozen inheritance thresholds. Instead of targeting wealthy estates, the cap might unintentionally penalise middle-class households simply trying to support their loved ones.
The administrative challenge of monitoring lifetime gifts could be considerable. His Majesty’s Revenue and Customs (HMRC) would need to maintain detailed records over many decades, a task susceptible to errors and disputes. Families might face retrospective tax bills due to incomplete or lost records, which can cause additional stress and confusion.
Unintended behaviours and complex planning
Introducing a limit on lifetime gifting could also prompt behavioural changes with notable effects. Families might accelerate financial gifts, opting to use their allowances early, which could leave some individuals short of resources later in life. Conversely, those seeking to keep financial control might turn to more intricate planning structures like trusts.
Trusts, although potentially advantageous, complicate estate planning and require professional guidance to execute correctly. They can assist in preserving wealth for future generations, but might also introduce additional layers of regulation for families and advisers to oversee. Whether such solutions offer broad relief largely depends on the specific details of the proposed lifetime cap.
Supporting families, not penalising them
Family dynamics have changed considerably over recent decades, with intergenerational financial support being vital in easing economic hardships. A lifetime gifting limit could undermine these efforts by discouraging small, regular gifts that assist with everyday expenses for younger generations. Reform should strike a balance, tackling tax avoidance without unfairly burdening families trying to manage daily responsibilities.
The outdated gift allowances have remained unchanged for over 40 years. Current rules exclude small gifts under £250 and allow an annual gift allowance of £3,000, amounts that are relatively insignificant in today’s economy.
Source data:
[1] Quilter Plc research 13 August 2025
This article does not constitute tax, legal or financial advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested. Past performance is not a guide to future performance. The Financial Conduct Authority does not regulate estate planning, tax advice or Trusts.