The rules relating to inheritance tax (IHT) and gifts are complex and often misunderstood.
At the most basic level, there is no immediate IHT charge on a gift to an individual. However, if the donor (the person making the gift) dies within 7 years, the value of the gift is brought back into account when calculating the IHT due on their estate.
There a number of reliefs which can apply – taper relief, business property relief, agricultural property relief – but the interaction of the rules is far from straight forward.
HMRC have been consulting on simplifying these rules and the latest recommendation is that a standard flat rate gift tax be introduced.
If implemented, this could make lifetime giving considerably more costly from an IHT perspective – it could be that an immediate flat rate charge of 10% – 20% would apply in place of the 7 year rule.
If you, or any of your clients, are considering making lifetime gifts, it may be wise to do so sooner rather than later.
However, it is important not to view a gift solely through the lens of IHT – careful attention should also be given to the capital gains tax implications and asset protection consequences.
If you would like to discuss further please contact our expert team, Heather Lally on 01244 354800.
