Changes to inheritance tax leave major problems unresolved and will not lead to ‘wholesale change’, solicitors have claimed.
Last week an independent review by the Office for Tax Simplification (OTS) recommended that fewer people should pay tax on gifts given shortly before death in order to cut down on administration.
One of its main proposals involved trimming the ‘seven year rule’ to five years. This would mean that assets given away more than five years – as opposed to seven years – before the original owner died are not subject to inheritance tax.
According to the OTS, seven years is an awkward time frame as bank statements more than six years old can be ‘difficult and time consuming for executors to obtain’.
The OTS also stated that current gift exemptions are ‘complex and create confusion’. It suggested, therefore, replacing annual gift exemption with an overall personal gift allowance. It did not indicate how large this allowance should be.
Solicitors for the Elderly (SFE) complained that the reforms do not go far enough. Michael Culver, chair of the board at SFE, said: ‘Five years is still a long period of time, and there are far more beneficial changes that could be made to inheritance tax on lifetime gifts.
‘For instance, an individual can currently give away £3,000 per tax year, without the seven year rule applying. This has not increased at all since the mid 1980s and is long overdue an increase.’
Emily Deane, technical counsel at the Society of Trust and Estate Practitioners (Step), added: ‘We are disappointed that there are no recommendations in relation to the nil-rate band, the residence nil-rate band or the treatment of trusts. We believe that the government could expand upon these recommendations and look at a wholesale change in policy towards inheritance tax.’
President of the Law Society Simon Davis welcomed the changes, however. He said: 'We have long maintained that inheritance tax is overly complex. Much can be done – and is needed – to ensure that processes around inheritance tax law are as simple as possible and easily understood by practitioners and taxpayers alike.'