“Outdated” IHT allowance unchanged since the Eighties

The inheritance tax small gifts exemption, which allows people to give individuals up to £250 each year without it counting towards their estate for inheritance tax purposes, has remained unchanged since 1980, the same year as the Rubik’s Cube was released, the Austin Allegro was among the best selling cars and Yes Minister hit TV screens . If it had kept pace with inflation, the exemption would now stand at almost £800.

The £250 exemption applies to individual gifts and is an “all-or-nothing” relief, meaning a gift worth £251 does not qualify at all under the exemption. This means smaller gifts such as a full day spa treatment or an item of jewellery could easily fall outside the exemption.

As part of its report highlighting frozen tax allowances,¹ the ATT says the gift exemption is no longer fulfilling its original purpose of simplifying inheritance tax administration. Instead, its low value means executors are increasingly have to rely on more complex inheritance tax rules when dealing with estates.

Jon Stride, chair of the ATT’s Technical Steering Group, said:

"The small gifts exemption was introduced to keep everyday generosity out of the inheritance tax system. Forty years later, inflation has steadily eroded its value and it no longer achieves that aim.

"The allowance now catches gifts that most people would regard as ordinary, creating unnecessary complexity for families and for executors trying to administer estates.

"Increasing the exemption to reflect inflation would make the rules simpler, reduce paperwork and allow HMRC to focus its resources on more significant inheritance tax issues rather than relatively insignificant family gifts."

Notes for editors:

1. Outdated tax reliefs and allowances - the ATT's worst offenders.