The number of people paying inheritance tax (IHT) has fallen in recent years. So the government is expected to announce a complete review of IHT, following recommendations by the Office of Tax Simplification in an attempt to reverse this trend, says Emma Simon in The Daily Telegraph. However, since any changes are not likely to be retrospective, Danny Cox of Hargreaves Lansdown advises people to take action now.
The area where the rules are most likely to be tightened is gifts, which is how most people reduce the taxable value of their estates. At present, it is possible to give IHT-exempt gifts worth up to £3,000 per tax year.
If a cash gift is regular, comes from surplus income and doesn’t reduce your standard of living, you can give away as much as you like. Gifts above these levels may also escape IHT (currently 40% of any sum over the IHT threshold of £325,000), but only if the donor survives for seven years from the date of making the gift. These are known as Potentially Exempt Transfers (PETS).
The wealthy tend to pass on cash because it is exempt from capital gains tax (CGT), points out Andrew Levy in The Daily Mail. Assets that could trigger a separate CGT liability include ‘moveable’ property such as jewellery, antiques, works of art worth more than £6,000, and second homes.