Two proposals being discussed are an extension of the seven-year period to ten years, or a lifetime cap on the amount that can be given away tax-free. At present, an outright gift to an individual generally falls outside the donor’s estate for inheritance tax purposes if the donor survives seven years. Tax can taper on certain gifts made between three and seven years before death. There is currently no overall limit on the value of gifts that can fall outside the estate under this rule. 

The practical question is whether gifts already made would be protected. If a new rule applied only to gifts made after the Budget, families would have time to adjust. If it applied to deaths after a certain date, gifts made eight or nine years ago could come back into charge. 

There is also a trust angle that much of the commentary misses. Gifts into most discretionary trusts are already chargeable when made, with 20% inheritance tax generally due on the amount above the available nil-rate band where the trustees pay the tax. A gift into trust followed by an outright gift can already mean looking back over a period of up to 14 years. A longer window would extend that further, affecting anyone using a rolling programme of trust gifts. 

For context, both a longer seven-year rule and a lifetime cap were predicted ahead of the October 2024 and November 2025 Budgets; neither was introduced. 

Labour does have historical precedent here, however. In 1974 another Healey – Labour Chancellor Denis Healey – replaced estate duty with capital transfer tax, which taxed lifetime gifts as well as estates and added them together cumulatively. The seven-year rule only arrived in 1986, when inheritance tax replaced it. A lifetime cap would represent a move back towards that earlier system.

Regular gifts made from surplus income, provided they leave the donor's standard of living unchanged, are currently exempt from inheritance tax immediately and without an overall limit. This is one of the most valuable inheritance tax reliefs available, and a cap has been suggested as a possible Budget measure.

A cap would affect more people than the headlines suggest. Grandparents paying school fees, parents topping up children’s pensions, and anyone paying premiums on a life policy written in trust to cover a future inheritance tax bill often rely on this exemption.  

Whatever happens, the relief depends on good records, so anyone using it should keep a clear record of their income, expenditure and gifts each year. 

Today, when someone dies, their beneficiaries generally acquire inherited assets at their market value on the date of death. Capital gains accrued during the deceased’s lifetime are effectively wiped out for capital gains tax purposes. 

Removing that uplift could raise significant sums for the Treasury, but it would also create a risk of double taxation. An estate could pay 40% inheritance tax on an asset’s full value, while the beneficiary could later pay capital gains tax on decades of growth when they sell it. 

A middle way was proposed by the Office of Tax Simplification in 2019. Under that approach, the uplift would be lost only where an asset is already exempt from inheritance tax, such as assets passing to a spouse or qualifying for Business relief. 

For trusts, the uplift also applies in some cases when a life tenant dies, and that would need careful attention if the rule changed. 

The Prime Minister, Andy Burnham, proposed replacing inheritance tax with a 10% levy on all estates to fund social care when he was Health Secretary in 2009. The idea resurfaced when he took office, but the government has distanced itself from it. A change of that size would normally go through consultation first, so it seems unlikely to arrive fully formed ON 28 October. 

Some commentators expect further restrictions to Agricultural Property Relief and Business Property Relief, which were already reduced in April 2026. Owners of family companies and farms should watch for any change to the £2.5m allowance or to the 50% relief above it.