Inheritance tax (or IHT) is wrongly named. It leads to the assumption that someone must have died for the tax to become due, which is not the case at all. As widely reported, HMRC is looking at collecting the tax due from donors to the leave and remain referendum campaigns, who are still very much alive.
Could HMRC now start looking elsewhere? IHT can be payable simply by giving money away; it all depends on how much and who receives it.
There are a range of very outdated, and therefore relatively small, reliefs available. Up to £3,000 can be gifted each year to anyone, up to £5,000 on a child’s marriage, £250 small gifts relief, etc although an exemption for normal gifts out of excess income may potentially be more generous in relevant circumstances.
Then there is the nil rate band, which has remained at £325,000 since 2009. So essentially, any capital gift in excess of the nil rate band is potentially taxable even if that gift is made during an individual’s lifetime and no-one has died; it mainly depends who has received it.
Gifts to another individual of any amount are only potentially exempt and could be taxable if the donor dies within seven years of making the gift.
Gifts to an organisation generally require a specific exemption. For example, gifts to charities, housing associations, for national purposes, maintenance for historic buildings and, of course, to political parties , as defined, are specifically exempted. Any other gift can result in an immediate charge to IHT at 20 per cent.
That can include a gift to a trust or an organisation which does not qualify as a charity. Specifically, this might include gifts to hospitals not registered as a charity, charities registered outside of the EU or gifts to a company, perhaps owned by a family member.
Subject to any possible changes in legislation, before making any substantial gifts, it is worthwhile ensuring that it will not result in an immediate charge to IHT. No-one needs the shock of an IHT bill; imagine what could happen.
For more information please contact Gary Heynes.