HM Revenue and Customs has announced that it will be looking much more closely at how wealthy families use the seven-year gift rule.
The rules currently allow that any gift made seven years or more before a person’s death is exempt from inheritance tax. But money given within the seven years is taxed at up to 40 per cent.
Geoffrey Todd, a partner and tax planning expert at Boodle Hatfield, said: “The authorities are turning their attention to this area and may ask to see financial information such as bank statements and pension plans to make sure any gifts have been accurately declared. If some gifts have not been declared or the paperwork is not as it should be, individuals may face stiff penalties and a tax liability.”
Government revenues from inheritance tax have risen from £1.7bn in 1997 to £3.3bn in 2006, with the number of families paying the tax increasing by 72 per cent over the past five years.
“The Revenue has stated in one of its regular newsletters that until 31 March 2008 it will be ‘paying particularly close attention’ to lifetime transfers. It is easy to make mistakes by not keeping adequate records of gifts or simply not realizing that a transaction may constitute a gift for tax purposes,” says Todd. “We would urge individuals and families to keep good records of gifts and seek advice if they are in doubt as to how to complete inheritance tax returns.
Date: 25th, September, 2007
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