Cash gifts face 60 per cent tax hike under potential new law, expert warns

Cash gifts could cost an extra 60 per cent if a new UK government was to adopt tax regimes similar to its European neighbours, a tax expert from law firm Shakespeare Martineau has warned.

Currently, 63 per cent of European countries charge a tax on gifts made in a lifetime.

The UK isn’t one of them, with current rules allowing individuals to give away assets or cash up to £3,000 each tax year without it being added back onto the value of their estate for inheritance tax (IHT) purposes.

Changes to IHT have long been speculated and debated, but tax experts are also predicting the introduction of a tax on gifts post-General Election to boost the coffers and create a new revenue stream for the UK public purse. 

Julia Rosenbloom (pictured), partner and tax expert at law firm Shakespeare Marineau, said: “We can be certain that whichever party is elected in July, they will be looking for ways to pay for critical services and a tax on lifetime gifts could be an answer to this.

“At present, you could gift someone a cash lump sum and not be hit with a tax bill.

However, this isn’t the case in the majority of European countries. Although the Conservatives are historically a low tax party they have hit high earners and big corporates in the past five years.

“And while Labour has ruled out any form of wealth tax, this could be part of the party’s plan in an Autumn budget, if elected.”

Any gifts over the present £3,000 annual threshold are totted up as part of the donor’s estate as a potential IHT target, should they die within seven years of the gift being made.

IHT is currently payable at a rate of up to 40 per cent to the extent the value of an estate exceeds an individual’s nil rate bands and any reliefs. If you live longer than seven years, however, there is zero tax on the gift, but a tax on gifts could reverse this completely.

Julia added: “If you look at other nearby European countries – for example the Republic of Ireland, The Netherlands, Germany and France – they all have a gift tax at substantial rates; it’s not out of the realms of possibility that the UK could follow suit.

“And, as interest rates rocket, and more people struggle to fund major life steps and turn to the help of loved ones to foot the bill – I expect gifts are at an all-time high.

“Families really need to get their assets in order ahead of any post-election budget – with the right advice impact can be minimised should significant changes happen.”