- On July 12, 2019
DETAILS of suggested far-reaching changes to the rules surrounding Inheritance Tax (IHT) – often cited as the nation’s most unpopular tax – have been revealed this week and are already mired in controversy.
Reducing the seven-year IHT tax gifting rule to five years is one of several changes being examined by The Office of Tax Simplification in a bid to make the rules surrounding estate assets more straightforward.
On the surface this appears to be good news, however another proposed change is scrapping taper relief altogether. This has already been branded a ‘tax grab’ by some analysts.
Under the current rules you can gift any amount of money or other valuable assets, such as property, from your estate free from tax if you survive for seven years after the gift was made.
Taper relief comes into play if you die within seven years of making the gift. You’ll pay a sliding scale of tax depending on which year you die in. If you die within three years of the gift the beneficiary will have to pay 40% tax, yet if you die in years six to seven, they’ll have to pay 8%.
Commenting on the changes, Neil Jones, wealth and tax specialist, said: “While still not a root and branch review of IHT, it does seek to deal with major areas of confusion and, in some cases, injustice, and we’d urge the Government to implement some of these ideas.
“The rules around gifting are ripe for review. One recommendation is to cut the 7 year rule down to 5, so if you gift after five years it can effectively be done outside of IHT.
“It’s also proposed to remove the ’14-year rule’ entirely, meaning there would be no need to take into account gifts made outside of the existing 7-year period. Getting rid of taper relief will be welcomed by many, as it’s extremely confusing.
However, personal finance analyst Laura Suter warned that getting rid of taper relief could be viewed as a ‘tax grab’.
She said: “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, 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.”
Find out more about how to reduce your Inheritance Tax bill with our easy-follow guide.
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