Shadow chancellor John McDonnell confirmed to Sky News over the weekend that the Labour Party was considering reforming the current inheritance tax system and replacing it with a lifetime gifts allowance.
Under the proposals –first set out in a report last month – rather than annual gift allowances and a nil rate band of £325,000 plus £150,000 for a main property, everyone would get a lifetime allowance of £125,000.
Everything above that would be charged income tax.
It is expected to raise £9.2bn a year more than the current system, but there are warnings that it could stop parents helping their children onto the property ladder at a time when the Bank of Mum and Dad is estimated to be the ninth largest mortgage lender.
“The proposals would dramatically reduce the amount of money that people could give their family tax-efficiently – unless they have exceptionally large numbers of children,” Sarah Coles, personal finance analyst for Hargreaves Lansdown, warned.
“The current rules on lifetime giving have also helped encourage people to share the wealth within their family before their death, and the earlier they make these gifts, the better from a tax perspective, because the more chance it has of being outside their estate when they die.
“It means younger people benefit from payments when they need them most. The new rules would remove this incentive.
“In fact, the rules may encourage people to spend as much of their money as possible during their lifetime, and leave their offspring to fend for themselves.”
