Parents may be prevented from making unlimited tax-free gifts to their children under a proposed tightening of inheritance tax rules.
The Treasury is reportedly considering a lifetime cap on the value of gifts that someone can pass on before they die in order to reduce their eventual inheritance tax bill.
The proposals - which have been reported in The Telegraph and The Guardian this morning - come as the Chancellor battles a black hole of up to £50billion in this autumn’s Budget.
At present, gifts made seven years before someone dies are not subject to IHT, while those given three to seven years before death are taxed on a sliding scale known as “taper relief”, with the rate reducing each year from 32% to 8%.
A lifetime cap could be introduced to limit the amount of money or value of assets an individual can donate as part of their IHT planning and the Treasury is also reviewing rules around the taper rate, people familiar with the matter said.
A source with knowledge of the work told the Guardian: “With so much wealth stored in assets like houses that have shot up in value, we have to find ways to better tap into the inheritances of those who can afford to contribute more.
“It’s hard to make sure these taxes don’t end up with loopholes that undermine their purpose. But we are trying to work out what revenue might be raised and how to ensure it’s a fair approach.”
Sir Mel Stride, the Conservative shadow chancellor, said: “Those who have worked hard, saved and want to pass something on to their loved ones shouldn’t be punished by yet more taxes from Labour.
“Tax rises are coming to paper over the cracks of the Chancellor’s economic mismanagement. Nothing is safe under Labour – not your job, your business, your farm, your savings or your pension. Rachel Reeves is taxing your family’s future to fund her failure.”
A Treasury spokesman said: “The best way to strengthen public finances is by growing the economy, which is our focus.
“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8billion and cut borrowing by £3.4billion.
“We are committed to keeping taxes for working people as low as possible, which is why at last autumn’s Budget we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee National Insurance or VAT.”