Wealthy families rush to give away fortunes to avoid inheritance tax raid this autumn
Tax experts say they are seeing a rush for advice from people who want to preserve and pass on the money they have made from property and other assets
Graham Southorn shares inheritance tax tips
Families sitting on cash, property, businesses and share fortunes are racing to give away their riches to their children ahead of a predicted rise in Inheritance Tax in the October Budget, it is claimed.
Tax experts say they are seeing a rush for advice from people who want to preserve and pass on the money they have made from property, investments and hard work through their lifetime.
Separately, it is reported that a number of foreign UK residents and British millionaires are looking at whether they can escape predicted rises in wealth taxes by moving overseas.
Currently, people can give away cash and assets to loved ones free of tax provided they live for at least seven years from the date of the gift.
However, there are fears this IHT relief will be removed or amended, perhaps to require any giveaway to be made 5 years before death to avoid being hit with what has become known as Britain’s most hated tax.
Such a change could encourage people who have made a fortune through, for example, house price booms to give away money earlier than originally envisaged. It might also encourage people sitting in large family homes to downsize at a younger age to free up assets which can be passed on.
Changes to IHT are thought to be central to a series of tax rises likely to be announced this Autumn following claims from the Chancellor Rachel Reeves that she needs to fill a £22 billion black hole left in the nation’s finances by the last Conservative government.
Lizzie Murray, of accountancy firm Saffery, said people who had always intended to give money to their children are now accelerating those gifts while the current rules are still in place.
She said: “I’ve got clients with children in their 20s – who would perhaps prefer to wait until the children are in their late 20s or early 30s to make a gift – but are taking a risk on the child rather than taking a risk on the Government, in the expectation that the tax landscape is likely to get worse from October 30.”
Others are transferring assets that qualify for business property relief into trusts. Ms Murray said: “If you do have business property relievable assets, and you’re comfortable that they do qualify for business property relief or agricultural property relief, then you can transfer those assets to a trust for the benefit of children and grandchildren.
“That gives you a little bit more control over the funds going to your children, rather than an outright gift.”
Giving away assets allows a person to lower their inheritance tax liability by bringing the value of their estate underneath the tax-free allowance or as close to it as possible.
There is a 40 percent tax charge on the portion of an estate worth more than the nil-rate band of £325,000 – or £500,000 if the person leaves behind a property to their children.
Currently, couples can share their allowances, so they can pass on £1m without worrying about death duties, although this may be about to change.
Separate to the seven-year gifting rule, people can also – at least currently - give away up to £3,000 each year which will immediately be considered outside of their estate. This is called the annual exemption.
Sean McCann, of insurer NFU Mutual, said middle-class families are using up a number of allowances in case the Chancellor scraps them.
Mr McCann told the Telegraph that a number of people are currently taking advantage of something known as “gifts out of normal expenditure”. This little-known exemption allows people with enough spare cash to make regular gifts to their loved ones without paying inheritance tax on the sums.
Mr McCann said: “Many wealthy grandparents use this to pay their grandchildren’s school fees and so the introduction of a limit or an abolishment, coupled with VAT on school fees would be a double blow.”
In addition, business owners are handing down ownership to their children early, he said, concerned that Labour could decide to cap business property relief. Companies eligible for the relief can be passed on free from inheritance tax, regardless of value. Over 4,100 families saved £2.9bn through the relief last year.
