What is the seven year inheritance tax rule?
Posted on 18th July 2019
The current rules in relation to paying inheritance tax means that if any gifts are made in the seven years prior to the deceased’s death, then inheritance tax could be payable. Certain gifts can be exempt, such as gifts of up to £250.00 to family and friends, and a first gift allowance of up to £3,000.00. However, given that the £3,000.00 rule was created in 1980’s, there has been no allowance for inflation made, meaning that the gift wouldn’t go as far by today’s standard.
So, what are the issues with the seven-year rule?
Well, bank statements and financial records only have to be kept for six years, and therefore tracking that final year could be a real struggle. On top of that, any small gifts of £250.00 could be difficult to keep track of.
This should help executors to keep track of gifts made more easily, and lessen the burden of the work they need to carry out. For our team of Wills and Probate Solicitors in Preston, this would mean that we would only need to discuss as far back as five years with our clients, which would simplify the process, and would help our clients to find it easier to navigate the process of applying for a grant of probate.
Given that the Office of Tax Simplification (OTS) estimates that only £7 million of the £4.38 billion inheritance tax collected was from gifts made over five years prior to the donor’s death in 2015/2016, which – in the grand scheme of things – is less than 0.5% of the total income.
How will this affect me?
Well, it may not affect you what-so-ever, but it may help your executors to find it easier to finalise your affairs on your passing.
Another suggestion made by OTS, is that rather than individual allowances of £3,000.00, each person gets one overall personal gift allowance, to help the executors better track the gifts made.
You can read the OTS’s full report, here, or if you’ve got any questions about paying inheritance tax on your loved one’s estate, or about what inheritance tax your loved ones might be paying for you, contact our expert Wills & Probate team of solicitors in Preston on 01772 783 314 or email enquiries@mglegal.co.uk.
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