UK Taxpayers Face IHT Crackdown

by Robert Lee, Tax-News.com, London

21 January 2009

Moore Blatch, a law firm specializing in wealth management, is warning those planning to donate their money to their family by way of a ‘gift’ that HM Revenue and Customs is planning a crackdown on inheritance tax gifting loopholes.

Currently, there is no specific mechanism for reporting outright gifts at the time they are made, meaning that the onus has always been on the executors of an estate to declare any gifts made during lifetime, particularly those made within seven years of death.

However, according to Moore Blatch, instead of just focusing on those estates in excess of the nil rate band in force at the time of death (and where there is a potential charge to IHT), HMRC will be investigating in greater detail those estates where, seemingly, no charge to tax arises, in a drive to maximise revenues.

Moore Blatch advice on best practice for gifting:

• If the gift is in the form of cash, cheque or even a chattel, such as jewellery, you should also give a letter stating “I enclose a (cheque, ring etc) to the value of GBPxx by way of a gift,” remembering to date and sign the letter.
• If the gift is a loan then it should be accompanied by a promissory note signed by the recipient.
• Do not use ‘side letters’. A side letter is a letter that states that, if for some reason, the relationship breaks down between the donor and the recipient, then the donor can claim the gift back. In order for a gift to be free of IHT, it must be unfettered and the existence of such a letter will, therefore, make void any IHT relief.

Andy Kirby, senior trusts and tax manager, Moore Blatch said: “Understanding the IHT process need not be as complicated as it sounds, given the right advice. Give a little thought to documenting the gift and holding proper records, as time spent considering the IHT position at the outset can save confusion, and subsequently the danger of significant IHT costs.”

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