Review recommends cutting inheritance tax gift period
An independent review of inheritance tax has recommended reducing the qualifying period for gifts before death as part of a broader push to simplify the tax.
Assets given away during someone's lifetime are exempt from the tax if they live for at least seven years with a taper if the person dies within three years of the gift.
The Office for Tax Simplification said the seven-year period raised little tax while putting a heavy burden of record-keeping on families. It recommended reducing the gifting period to five years and scrapping the taper.
The OTS also called for simplification of exemptions for lifetime gifts including for the first £3,000 given away each year and for individual gifts of up to £250, gifts to someone getting married or regular gifts out of disposable income. These should be replaced with a single personal gift allowance updated from the 1980s.
The review, commissioned by Chancellor Philip Hammond, also recommended changes to rules on passing on businesses and farms and questioned whether business property relief should be applied to investments in AIM-listed shares.
Kathryn Cearns, the OTS chair, said: "Although only a small number of people pay Inheritance Tax each year, a far greater number worry about it. The OTS’s packages of recommendations would go some way to achieving the goal of making the tax easier to understand and simpler to comply with."
Less than 5% of estates pay inheritance tax though about half of estates need to complete and submit forms. Though few estates pay the 40% marginal tax, surveys have shown it is Britain's most hated tax. The OTS said the unprecedented number of submissions to its review, including almost 3,000 online responses, showed the tax raised strong emotions and was often misunderstood.