Budget 2024: Why families with assets are exploring ways to give away wealth to children

The Prime Minister has told the country to prepare for tax rises, but he’s ruled out raising income tax, national insurance and VAT, which means two key target areas could be Capital Gains Tax (CGT) and Inheritance Tax (IHT).

CGT rates for higher rate taxpayers are currently 20 per cent, 24 per cent for residential property gains or 28 per cent for carried interest gains. These are low rates when compared to the current 45 per cent highest rate of income tax and may therefore be increased.

The annual exempt amount has previously been reduced to £3,000, but this could be lowered further or abolished altogether, and there could also be changes to CGT reliefs such as Business Asset Disposal Relief or Holdover Relief which may reduce their impact to taxpayers.

A key point will be whether any changes to CGT will be effective from Budget day or the start of the next tax year.

IHT is currently charged at 40 per cent on the value of any assets above £325,000 when someone dies.

Options open to the chancellor could include changing the rate or lowering the threshold at which it’s paid, bringing more estates potentially within the scope of the tax.

Abolishing Potentially Exempt Transfers (PETs), so that gifts to individuals are immediately chargeable to IHT, subject to any available reliefs, or increasing the seven-year survivorship period could also be on the table.

In addition to the seven-year gifting rule, people can also give away up to £3,000 each year outside of their estate, known as the annual exemption. Changing the rules surrounding this is another option open to the Government.

As a result, in recent weeks we’ve seen a lot of families that are sitting on cash, property, businesses and shares exploring ways to give away wealth to their children ahead of the Budget.

They’re seeking advice on how to preserve and pass on the money they have made from property and other assets.

In some cases, people who had always intended to give money to their children have accelerated those gifts while the current rules are still in place.

We have clients with children in their 20s – who would perhaps usually prefer to wait until the children are in their late 20s or early 30s to make a gift – but are taking a risk on the child rather than taking a risk on the Government, in the expectation that the tax landscape is likely to get worse after the Budget.

In many cases, giving away assets enables a person to lower their IHT liability by reducing the value of their chargeable estate to below the tax-free allowance, or at least closer to it.

Others that have assets, that qualify for business property relief or agricultural property relief, are transferring those assets to a trust for the benefit of children and grandchildren. This option ensures they are taking advantage of the reliefs as they currently apply and has the added benefit of giving the donor, who often becomes a trustee, more control over the funds, rather than being an outright gift.

There’s a possibility that a period of consultation will take place before any fundamental changes to the IHT regime are made, but this cannot be guaranteed. However, depending on what’s announced in the Budget, this could open the floodgates for families looking to preserve their hard earned wealth.

Chris Luckett is a partner at independent accounting firm Saffery’s Yorkshire office.