Decades-old gifting allowance erodes in real value, research reveals

The annual tax-free gifting allowance remaining static for the past four decades means its real value is lagging by 360%, research from Sussex law firm Mayo Wynne Baxter has revealed.

Current rules allow individuals to give away assets or cash up to a total of £3,000 each tax year without it being added back to the value of their estate for inheritance tax purposes should they die within seven years of the gift.

Inheritance tax is currently payable at a rate of 40% to the extent the value of an estate exceeds an individual’s nil rate bands and any reliefs.

However, the exemption limit has not changed since it was set in 1981 – a time when it could easily cover the average cost of typically-gifted items such as a house deposit (£2,373), first car (£1,000) or family holiday (£215).

Had the tax-free gifting allowance kept up with the rate of inflation, which has reached 268% during the past 42 years, it would now be worth £11,052, according to the Bank of England.