Increase gifting cap to ease ‘generational unfairness’

those without property, but who have substantial investments, do not benefit. The same schedule could be kept in place, so that individuals would have £450,000 to pass on tax-free from April 2018, and £500,000 by April 2020.

The current £325,000 allowance has been frozen since 2009. If it had risen by inflation it would be at £414,000 today. Yet even an increase of that magnitude (27pc) would trail the increase in property prices (41pc) and stock market returns (193pc) over the same period.

Tax experts agree that combining the allowances, and abolishing the link with property, would help families across Britain.

George Bull of RSM, an accountancy firm, said inheritance tax was no longer “fit for purpose”.

He said: “I very much hope that, as a result of this review, the family home allowance will be abolished and replaced with a simple increase in the exempt amount applicable to all deceased estates the length and breadth of the country.”

Fewer people would be caught by death duties as a result, he added, and no one would lose out.

Rachael Griffin, a tax expert at Old Mutual Wealth, said the financial planning firm receives “constant questions” around exactly who could claim the allowance.

She said it was “dangerous” to leave the rules in their current form and warned without reform elderly people and families would have no choice but to resort to paying solicitors to help them interpret the rules.

Raising the annual “gifting” allowance – which has remained at just £3,000 a year since 1981 – would help families pass on wealth during their lifetimes. If the gifting limit had grown in line with the cost of living, it would now be around £11,000 a year.

At the moment, children typically receive the bulk of an inheritance in middle age, when they are more likely to be on the property ladder already and at the peak of their earning power.

Ms Griffin said boosting the allowance would address Britain’s “intergenerational inequality

‘One way to ease the pressure is to allow wealth to filter down more easily’

problem”. She said: “A deadly cocktail of rising tuition fees and unaffordable housing has led to a generation of graduates who, when first entering the job market and adulthood, may rightly feel their outlook is bleak.

“One way to ease the pressure on the younger generations is to allow wealth to filter down more easily.”

Individuals can give away more than £3,000 a year – but under certain conditions. Gifts to charities and political parties are exempt, as are wedding presents and help with another person’s living costs. A little-known exemption allows “normal gifts out of income”. However, you must prove the gift doesn’t affect your standard of living.

Finally, the “seven-year rule” means that normally non-exempt gifts are tax-free if made seven or more years before death. Increasing the gifting allowance would avoid the need to grapple with these convoluted exemptions at a stroke.

The ‘gifting’ allowance has remained at just £3,000 a year since 1981