Independent Review Calls for Inheritance Tax Revision
Inheritance Tax (or IHT) is the tax owed on the estate (the property, money and possessions) of a person who has died. You can find out more about who needs to pay this tax and how much it is here* but one of the most important facts about IHT is the seven-year rule.
This states that any gifts given during one’s life are exempt from taxation if the person giving remains alive for seven years after the gift is given. If the gift is given in the three years before the person’s death, it is charged at 40 per cent. Gifts made three to seven years before one’s death are taxed on a sliding scale known as ‘taper relief’.
An independent review by the Office of Tax Simplification* has stated that this seven-year period should be cut down to five. This builds on the first recommendation made by the OTS in November that indicated that bereaved families find the current system too complicated. Tax specialist Neil Jones agrees: “The rules around gifting are ripe for review. One recommendation is to cut the seven-year rule down to five, so if you gift after five years it can effectively be done outside of IHT. This would obviously help more clients.
“Getting rid of taper relief will be welcomed by many, as it’s extremely confusing even for many professionals.” AJ Bell personal finance analyst Laura Suter agrees, adding: “The OTS rightly acknowledges that the seven-year taper rule is hideously complex, and can cause people to be landed with an unexpected inheritance tax bill years after they were gifted money.”
However, she goes on to say: “the suggestion of reducing the seven years down to five and scrapping taper relief entirely looks like a bald tax grab and revenue-raising move. “Instead the taper could be simplified into a two-step process for example, or if it’s scrapped entirely then the period should be shorter than five years.”
If you want help with your will or anything to do with inheritance tax get in touch with us today at firstname.lastname@example.org or call 01992 500 261 now and see how we can help address your financial future.
This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.
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