Government proposals to cut the seven-year gifting rules on inheritance tax down to five looks like a “bald tax grab and revenue-raising move”, AJ Bell personal finance analyst Laura Suter has said.
In its Inheritance Tax Review – second report, the Office of Tax Simplification (OTS) has suggested the seven-year period during which a lifetime gift may become subject to inheritance tax (IHT) is too long.
Instead, the OTS said the period should be reduced to five years, so that gifts to individuals made more than five years before death are exempt from IHT.
The government argued it could be difficult to obtain records going back as far as seven years, and the latter part of the current period raised little tax.
Additionally, the OTS said taper relief should be abolished. This helps calculate the amount of tax owed on a sliding scale, depending on the amount of time between the date of the gift and the death of the person who gave the gift. It is only relevant to people who make very large lifetime gifts totalling more than the nil rate band.
AJ Bell’s Laura Suter (pictured) said such a move would look like a tax grab, and the taper could be simplified without going down such a route. “The OTS rightly acknowledges the seven-year taper rule is hideously complex and can cause people to be landed with an unexpected IHT bill years after they were gifted money,” she said.
“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. I,nstead the taper could be simplified into a two-step process for example – or, if it is scrapped entirely, the period should be shorter than five years.”
For his part, Canada Life wealth and tax specialist Neil Jones welcomed the report’s findings, saying: “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. It is also proposed to remove the ’14 year rule’ entirely, meaning there would be no need to take in to account gifts made outside of the existing seven-year period.”
Jones said getting rid of the taper relief would be “welcomed by many”, adding: “It’s extremely confusing – even for many professionals.”