UK TO TAX LIFETIME GIFTS?
In the US, nobody in the middle class pays death tax, or estate duty or gift tax. In the UK, the position is more nuanced:
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There are two nil-rate bands within Inheritance Tax. Subject to available reliefs and exemptions, tax is payable to the extent the net value of the estate exceeds these nil-rate bands.
The £325,000 nil-rate band is available to all individuals and can be set against all asset types on their death. The nil-rate band can also be used both:
· to allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an Inheritance Tax liability
· in calculating the periodic and exit charges on relevant property trusts
The £175,000 residence nil-rate band is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the residence nil-rate band by £1 for every £2 that the net value of the estate is more than £2 million.
Any unused nil-rate band or residence nil-rate band following the death of an individual can be transferred to their surviving spouse or civil partner. This means that since 6 April 2020, qualifying estates have been able to pass on up to £500,000 and, if the nil-rate band and residence nil-rate band remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1 million without an Inheritance Tax liability.
The nil-rate band has been fixed at £325,000 since the tax year 2009 to 2010.
Now the Uk finance minister is floating radical change.
As City AM reports (August 15, 2025):
Rumoured changes to inheritance tax gifting spark concern for middle-class
By: Maria Ward-Brennan Senior Reporter
Rachel Reeves is reportedly exploring measures to increase revenue from inheritance tax by tightening gift rules, a move that may disproportionately affect the middle class.
The Guardian has reported the Treasury, ahead of the Autumn Budget, is considering tightening the rules surrounding the use of gifts of money to circumvent IHT.
Currently, cash gifts are exempt from tax as long as they are made more than seven years prior to the person’s death. Then, gifts made within three to seven years are taxed based on how close the recipient is to death.
This move comes as Reeves is seeking to gather £50bn in new taxes before her next Budget to avoid breaking the government’s fiscal rules.
Inheritance tax planning
Gifting is a legitimate form of inheritance tax planning, not just for the super-rich, but also for middle-income taxpayers, explained a lawyer.
Duncan Mitchell-Innes, partner and deputy head of private client at TWM Solicitors, said: “Gifting assets is a legitimate and long-established way for middle-income households to reduce IHT, it’s not a complex tax scheme reserved for the super-rich.”
According to HMRC inheritance tax data for 2020/21, families gave away over £2.1bn in cash gifts each year to reduce their IHT bills.
However, the rumoured move may disproportionately affect middle-class families than ultra-high net worth individuals.
“This is because their wealth is often less diversified, thus presenting fewer options for how to make tax-efficient gifts from it,” Mitchell-Innes explained.
He highlighted that people have expectations that they are free to give away their assets as they wish.
“The rumoured changes are causing people concern that their freedom to engage in prudent and sensible estate planning may be severely curtailed,” he added.
If the rules are changed, middle-class families will be more exposed, “as many ultra-high-net-worth individuals are very mobile and can restructure or relocate to mitigate tax exposure, perhaps more easily than most middle-class families.”
PROPERTY TAXES REFORM
Having trapped estates so that they cannot escape the IHT death - and life – tax net, the UK government is also now looking at taxing people’s own homes, as if they were a commercial asset.
What are Rachel Reeves' options on property tax?
Mitchell Labiak Business reporter 20 August 2025
Chancellor Rachel Reeves has some big decisions to make ahead of the Budget in November.
Economists says she is on track to break her own rules on government borrowing unless she can find billions to make up the difference between public spending and tax income.
To fix this, several reports have suggested the government is considering shaking up stamp duty and other property taxes - having repeatedly ruled out raising income tax, employee national insurance or VAT.
These changes could raise billions but also come with a range of downsides.
Capital gains tax changes
Capital gains tax (CGT) is a charge on the increase in the value of an asset when you sell it.
It applies to the sale of things like paintings, second homes, and stocks and shares, but main homes are currently exempt from CGT.
So, if you bought the main home you live in for £200,000 and sold it for £210,000, you are entitled to all of that £10,000 - barring some exceptions such as for those whose main homes are over 5,000 sq m (just over an acre) or who have let part of it out.
The government is considering removing this relief for pricier homes, according to the Times, which would mean those sales would be subject to CGT, the current rates being 24% for higher-rate taxpayers and 18% for lower-rate taxpayers.
How much this would raise depends on what the value threshold is for homes to be hit by the tax - in the last financial year, the tax raised £13.3bn.
Critics argue that removing CGT relief for higher value home sales would slow down those transactions, meaning it might not raise as much as the government would like.
Simon French, chief economist at Panmure Liberium, told the BBC that axing the relief "would be potentially incredibly lucrative but also incredibly controversial".
Abolishing stamp duty
Another change the government is reportedly considering is the abolition of stamp duty, which is a tax on the purchase of homes.
Unlike CGT, this tax does not apply to the change in value of the property but to the value of the property when bought.
Those buying homes for less than £125,000 do not pay stamp duty. First-time buyers do not pay stamp duty on properties worth up to £300,000.
Those buying homes worth more pay a percentage of the value of the home.
Colleen Babcock, Rightmove's property expert, says the tax is "a huge barrier to movement, from first-time buyers to downsizers".
However, getting rid of stamp duty would also mean lost revenue, with £11.6bn raised from the tax in the last financial year.
As such, reports suggest any abolition of stamp duty would come alongside other property tax changes.
The Guardian has reported that one such replacement could be a tax on owner-occupiers selling homes over £500,000 combined with a reform of council tax.
Replacing council tax
Council tax is a levy which funds your local authority.
It is based on what the value of the property you live in was in 1991 or - if the property was built after then - what the value of the property would have been in 1991.
It is done this way because that is the year the tax was introduced, but critics say this way of valuing properties is complicated.
They also argue that - because it is calculated at a council level - there are unfair disparities.
This means two people both living in homes with the exact same value would not pay the same council tax if they lived in two different council areas.
Despite widespread opposition to the current council tax system, government proposals for changes to the system have also come under scrutiny for taking money away from some areas to increase funding in others.
This highlights the difficulty the government might face in trying to overhaul council taxes.
The Treasury has not commented on any of the recent reports.
"We are committed to keeping taxes for working people as low as possible," a spokesperson said.
INFLATION AND DEBT
These proposals seem to inhabit a mindscape where inflation and debt do not exist as economic phenomena.
The government would be removing any incentive to act with prudence, or to save so as to pass on to children.
Individuals will be invited – and will rush to – take loans against their estates. The loan proceeds can be simply spent, thus reducing the net value of estates.
Loans could be invested in a wide range of shares securities – some conservative, some speculative. Again, an individual may as well take an imprudent bet on speculative market movements: with the upside of a payday which would offset the vast tax charges.
Essentially, these taxes will have the effect of pushing value out of the real estate market and into the securities and crypto markets.
This lending activity is inflationary. The taxes will be added to sale prices, which is more inflation. That pushes up the cost to the UK government of their treasury borrowing (known as gilts).
There is already a “black hole” there of GBP £41 Billion:
https://www.bbc.co.uk/news/articles/cn85vyd1epzo
Govt UK is already paying around 75% of its monthly borrowing out just in interest payments on past borrowings. The rate on government debt is at its highest for around 20 years, and getting higher.
So, Govt UK seems to be set on changing taxes which have the most immediate effect to increase the size of the black hole deficit those taxes are supposed to fill.