Transferring assets
Tax gift rule comes under scrutiny

A new inheritance tax (IHT) initiative has been launched against families who use the seven-year gift rule to reduce their bill, it has been disclosed. The scrutiny focuses in particular on ‘lifetime gifts’ involving transfers of assets made before a person dies. Gifts made more than seven years before a donor’s death are exempt from IHT. Bereaved families could face not only bills for any unpaid tax, but also financial penalties if information relating to transfers as long as seven years ago is incomplete or unclear.

HM Revenue & Customs has announced a thorough investigation into how people use the seven-year gift rule, which is intended to stop families avoiding the tax. Any gift made seven years before a person’s death is not subject to IHT, but money given within seven years may be taxed at 40 per cent. Fact-finding exercises are being conducted and may subsequently be used to change the law on lifetime gifts, tighten the requirements for inheritance tax returns, or increase the resources to police inheritance tax. The authorities are looking through financial information such as bank statements and pension plans to make sure any gifts made during the seven years before the donor’s death have been accurately declared. If families fail to complete paperwork accurately they could be fined.

Government figures show the number of families paying the tax rose 72 per cent in five years. While only 33,000 estates paid the tax last year, research by Halifax found that more than 1.5 million properties fall within the IHT net. If the tax increases continue at the present level, this will be 4.6 million by 2020.

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Levels and bases of, and reliefs from, taxation are subject to change.