Summary 

There are various outdated allowances in the tax system, which have not increased for several years and this results in the value of those allowances eroding over time. Examples include the approved mileage allowance payments (AMAPs) exemption for business travel in an employee’s own vehicle, the tax exemption for annual staff parties and other social functions and some Inheritance Tax exemptions. 

We would like to see the government review and increase the level of exemptions and reliefs on an ongoing basis, so that they can reflect movements in inflation. 

Detail 

Approved mileage allowance payments (AMAPs) 

AMAPs provide a statutory exemption from tax for payments made by employers to employees who carry out business travel in their own vehicles. The current rates have remained unchanged for over 14 years, during which time the cost of running a car has increased substantially. 

An employee using their own car or van for business travel can be reimbursed tax free at 45p per mile for the first 10,000 miles of business travel and 25p per mile for any mileage beyond that (although the 45p per mile rate applies for all mileage for national insurance purposes). An additional 5p per mile can be paid per passenger, provided that the journey is also business travel for the passenger. 

The main 45p per mile rate for cars and vans for the first 10,000 miles was last changed in April 2011. The rates for mileage in excess of that limit, and the 24p per mile rate for motorbikes and 20p per mile rate for bicycles, have been unchanged since at least 2001. These rates are now so out of date that employees using their own vehicle for work are effectively out of pocket. Indeed, the Bank of England’s inflation calculator suggests that 45p in 2011 would be worth 67p by November 2025, and 25p from 2001 would be 47p. 

We would like to see a single AMAP rate of at least 50p per mile for all mileage in a car or van, in order to better capture the additional costs incurred by employees. There is of course no obligation for employers to pay any increased rate, in which case the employee could claim relief on any difference between the mileage rate paid and the AMAP. 

Annual parties and other social functions 

We would like to see the tax exemption for annual parties and other social functions reviewed in order to take account of the increase in the cost of providing these events. 

Since 6 April 2003, the exemption has been £150 per head (including VAT), and employers frequently find this is insufficient to cover the cost of (say) a Christmas party for staff, especially in London and other more expensive parts of the country. 

We recommend that exemption should be set at a level that allows employers to provide recognition to all employees generally without incurring a tax liability. An increased exemption of at least £200 (including VAT) would better take account of the increase in cost of annual staff functions for employers. 

The existing exemption has remained in place for over 22 years and, based on the Bank of England inflation calculator, this would now be at least £277 if it had been uprated in line with inflation. 

Inheritance tax thresholds 

The key partial exemptions for inheritance tax have remained unchanged for decades. 

The exemption for small gifts to the same person has been £250 per donee since 1980. The separate annual exemption has been £3,000 per year since 1981. 

The more generous exemption for gifts on marriage or civil partnership (£5,000 for gifts from either party in the marriage or civil partnership, £2,500 from a partner or remoter ancestor or £1,000 for any other gifts) has remain unchanged since 1975. 

According to the Bank of England inflation calculator, the small gifts exemption would now be £1,082, the annual exemption would be £11,668 and the marriage exemptions would be £39,179/£19,590/£7,836 respectively as at November 2025 if they had been increased in line with inflation.

Keeping allowances updated 

To avoid the above exemptions being eroded in future, we feel that it is important for their value to be reviewed regularly, with the intention of them being increased at least every five years.