13 August 2025
More people are already being drawn into the IHT net due to frozen thresholds, rising property values and, from 2027, unused pensions being brought into scope. At the same time in recent years, the cost of living has squeezed household finances and families increasingly want and need to help each other financially. Quilter’s research shows UK retirees gift around £2,500 a year to loved ones, much of it to help with education and living costs.
Introducing a lifetime cap would be a significant departure from current policy. The UK has never had such a limit, and if it were set too low it could affect a large number of middle-class estates, particularly in areas where property wealth alone can easily breach frozen thresholds. Tracking a lifetime cap could prove administratively complex, requiring HMRC to hold long-term records of gifts across decades and potentially leading to disputes where records are incomplete.
There is also the risk of unintended behavioural shifts. A cap might encourage people to make large gifts earlier in life to use up their allowance, potentially moving significant assets out of their control before they are financially ready. Others might explore more structured planning options, such as trusts, which can offer greater flexibility and control over how assets are managed and distributed. While these arrangements may involve professional advice, they can also provide long-term benefits, including safeguarding wealth for future generations and ensuring that gifts align with broader financial and family goals. However, whether these could be utilised would depend on how the rules are set out if changed.
If a lifetime cap is introduced, it must be designed in a way that recognises the positive role intergenerational transfers play in supporting younger generations. Without careful thresholds and exemptions, a cap risks discouraging these transfers, limiting the flow of wealth through the economy, and unfairly penalising families who make regular small gifts over many years.
Any review of gifting rules should be considered alongside the outdated gifting allowances, which have been frozen for over 40 years. Reform should be proportionate and targeted at genuine avoidance, while ensuring families can continue to provide support without fear that normal acts of generosity will be swept into the IHT net. The Office of Tax Simplification has previously recommended shortening the gifting window from seven years to five and abolishing taper relief to make the system simpler. A lifetime cap could move in the opposite direction, adding complexity at a time when simplification is sorely needed.
