PETs result in Potential Extra Turmoil for David Cameron

12 April 2016

Joan Foster 

In a bid to be completely transparent David Cameron has revealed lifetime gifts received from his mother since his father’s death. In the week politicians’ tax affairs have come under much scrutiny we have taken a stroll through the inheritance tax (IHT) archives to uncover the history of the gift rules that have attracted yet more unwelcome attention for the Prime Minister.

Exempt lifetime gifts actually date back as far as 1896 when under estate duty rules, tax on death could be mitigated by making lifetime gifts free of estate duty. The period over which gifts were accumulated on death was originally only one year, rising to seven over time. Tax free lifetime gifts were abolished by Denis Healey in 1975 on the introduction of capital transfer tax before being reinstated in the March 1986 Budget by Nigel Lawson, the year IHT as we know it today was introduced. 

Interestingly 1986 also saw the introduction of the gift with reservation of benefit rules to make sure individuals could not manipulate the lifetime gifts rules by reducing IHT on death whilst still benefitting from the assets they had previously given away.

Mr Cameron has continued to endorse the IHT gift rules stating that they should be supporting and not discouraging the natural human instinct to make gifts to children. Indeed, since the beginning of this parliament the Conservative government has taken measures to allow many family homes to pass IHT free to the next generation. 

As the Prime Minister’s family appears to have done what many consider to be mainstream IHT tax planning perhaps it was not surprising that David Cameron faced little scrutiny on this point in Monday’s parliamentary debate. In addition, reverting to a system where lifetime gifts are taxed is unlikely to be popular given that increasing house prices are drawing more people into the IHT net.

If you would like any more information on this issue please get in touch with Joan Foster or your usual RSM contact.