Proposed changes to lifetime gifting under the Inheritance Tax regime

Along with landlords paying national insurance on rental income, and changes to stamp duty and council tax

News has broken this week about possible proposed changes to the lifetime gifting regime for Inheritance tax (IHT) that may be put forward in the upcoming Autumn statement. There are two things going on as regards this IHT gifting issues:

1 - reported by The Express on 27th August 2025, there are possible changes being floated around the gifts out of normal expenditure relief for IHT, more commonly known as “the excess income relief”. Details about what any changes may comprise, or how they would work, are limited in the article, and there is no concrete statement that the relief may be removed altogether. If it were, it would be somewhat disastrous, as the relief is particularly valuable, (and very much underused by people), because if you make regular gifts there’s no restriction on how much you can give away immediately free from IHT, provided it is out of your income and doesn’t impact your normal standard of living.

Given the scant detail about any changes, reports may be over exaggerating the possibility of change on this IHT exemption, but nevertheless it is one to watch as it would be particularly devasting for those that do have yearly excess income and wish to gift the same to their children to assist with house purchases etc.

2 - reported in Today’s Wills and Probate (a publication widely read by the legal profession working in this area), there are possible changes to the IHT lifetime gift rule known as the “7-year rule”. The 7-year rule enables unlimited amounts of money and assets to be gifted to anyone without IHT being due thereon, provided the gifts are made at least 7 years before death.

Changes may encompass changing the length of time between gift and death to 10 years, so effectively making the rule “the 10-year rule”, or removing the relief altogether, so that all gifts whenever made fall into a persons estate on death to be taxed to IHT at 40%.

There is also a suggestion that the current taper rate for gifts which exceed the available nil rate band, (between 8 and 32% applied to gifts between 7 and 3 years before death), might also be targeted.

The embedded article states “The general consensus from commentators is this is another grab for another slice of the “great wealth transfer” – the largest intergenerational transfer of wealth in history from the baby boomer generation”

Rachael Griffin, tax and financial planning consultant at Quilter is also quoted in the article and says the proposals could see 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.”

Landlords and National Insurance (NI)

It has been widely reported that Reeves is considering making landlords pay NI on their rental income in an attempt “to raise an additional £2.3 billion for the Government”

The proposal would see rental income, currently exempt from NI contributions, treated in the same way as earned income from work, potentially subject to the 8% rate applied to employees. The issue with this, of course, is that landlords are simply going to pass the costs of this onto tenants by raising rents, and this will further squeeze affordable housing supply, adding to the already current crisis of high rents.

Changes to stamp duty and council tax

Again apparently “leaked” proposals have floated the idea to abolish both Stamp Duty and Council Tax. This is based on commentary put forward by Onward who state “Onward’s “horizontal” proportional property tax to replace council tax and stamp duty is a new idea. It would see homeowners - not tenants - paying a proportional tax toward local services on house values below £500,000 and a national levy on the value above. A minimum payment of £800 for any house would be set to help fund local government. The local rate would be set by councils, but an average rate of 0.44% would replace council tax income”

The above is just the part that replaces council tax. There is a separate payment by home sellers to replace stamp duty. And this has caused much confusion with commentators getting muddled up between the above “local” property tax and the other proposed “national” property tax. Currently from what I can see the national property tax would be 0.54% for homes sold between £500,000 and £1 million, and 0.81% on any value above. The Guardian reported on this early stating “the national tax would be paid by owner-occupiers on houses worth more than £500,000 when they sell their home. The amount paid would be determined by the value of the property, with the rate set by central government, which would directly collect the proceeds via HM Revenue and Customs”.

However, contrast the above with a report from government mouthpiece BBC news which stated: “One such replacement for stamp duty could be a national proportional property tax on homes worth over £500,000. The tax would be payable by buyers of homes over that threshold but on a yearly basis after purchase rather than upfront. The annual rate would be set by the government, but the report suggests it should be a 0.54% tax levied on home value between £500,000 and £1m when bought, and a higher rate for any home value beyond £1m”.

Given the conflicting statements in the media about the national property tax element, I would watch for this one. I think it is likely to come through and I think the reporting on who would pay it and how often, is not muddled by accident.

I have many concerns about Onwards proposals and have done a deep dive on the same. I have prepared a long article as a result of this but am unsure whether to wait and see if these new property taxes are in the budget before posting. Perhaps you could let me have your thoughts - post now or wait?

Other

Do note that just a week ago Reeves was apparently also considering applying Capital Gains Tax, (CGT), to the sale of main residences over £1.5 million. I suspect she may well be considering this, but that the figure given is a tad high. I believe that Reeves would like to charge CGT on the sale of all main residences if she could. As all main residences are currently exempt from CGT charges, I suspect she views the matter as an untapped revenue stream to be exploited. However, no one ever seems to ask why the government, who have not contributed to assets that someone owns, should have a slice of any gain made through someone’s personal risk, hard work and upkeep, do they?

The Autumn budget is due to be delivered by Reeves in late October or early November 2025. Until this happens a lot of what we are hearing may well be speculation aimed at frightening people and causing further misery. Given this, just be mindful of the above rather than petrified. We will not know what measures are coming in until they have been announced, and at that point I will post a detailed update. In the meantime if you want to read the Onward report and their proposed property tax changes yourself, you can find it here.

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