Monday, 11 April 2016

How many avoid Inheritance Tax?

If giving money or other assets to family or friends to avoid inheritance tax is standard practice among the better off, as experts say, why do we have no idea how much of it goes on?

Not one of these bodies has any clue: HM Revenue and Customs, the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Taxation and the Institute for Fiscal Studies.

Just by way of a reminder, you can give away the assets and avoid 40% Inheritance Tax, as long as you live for another 7 years.

Between 7 and 3 years before you pass away there is a tapered rate, so less than 40% is paid.

The only figure that HMRC can provide is the amount of tapered relief which is granted, which adds up to £35m a year.

One suspects that is a tiny proportion of the quantity of tax avoided, legally, by making what are called PETs or Potentially Exempt Transfers.

But the total isn't tracked, because PETs don't have to be registered with the tax office.

The Prime Minster says the exemption allows parents to pass on money to their children, while Labour says it wants the wealthy to pay their tax.

Meanwhile, some accountants warn that imposing Inheritance Tax on gifts made more than 7 years before death could lead to double taxation.

If you give property or shares, they argue, Capital Gains Tax is triggered, while gifts from earnings would have incurred Income Tax.

But can someone tell us how much the Exchequer is losing from allowing PETs?

It would be nice to know.

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