Office Of Tax Simplification Propose New Inheritance Tax Gifting Rules
The inheritance rule involving inheritance gift giving before death could reduce from seven to five years.
Currently, any estate gifted within seven years of a person’s death are liable to be included in any inheritance tax bill with a sliding scale being imposed between three and seven years of the gift being given and the death of the donor.
According to changes suggested by the Office of Tax Simplification (OTS), the seven year standard offers a number of problems to executors as bank statements can be backdated by a maximum of only six years.
To ease the administrative headache on executors, the OTS have suggested reducing the exemption time frame from seven to five years for all gifted assets exempt from inheritance tax.
Whilst executors will benefit massively by making it easier to track potential liabilities and IHT contributions under the proposed system, losses to IHT contributions would actually be negligible. The report claims that a mere £7 million of the £4.38 billion inheritance tax receipts total from 2015/16 was accrued from gifts made over five years prior to the donors’ death.
Similarly, the OTS believe that this change will also help in minimising the administrative tasks within HM Revenue and Customs.
The changes also look at the structure of the system used to track exempt gifts from IHT. The recommendations highlight that a myriad of ways to make gifts exempt from IHT are confusing and outdated.
The system still uses the first gift allowance of £3,000 to be exempt from IHT; a rule created in the 1980s. Based on inflation rates, this figure should exceed £11,900 in the current market.
Additionally, random and unlimited gift exemptions of £250 can make it difficult for both the donor and executor to keep track of.
The report suggests creating an overall personal gift allowance for donors that would be exempt from inheritance tax if the donor dies within five years of making the gift. It is thought that this system will simplify record keeping and monitoring which could reduce delays and improve efficiency in determining IHT contributions.
What impact would the proposed changes have on the probate sector?