The Prime Minister was recently in the headlines facing specific criticism relating to a £200,000 gift that he received from his mother in 2011. The implication is that Mr Cameron and his mother had engaged in bad practice and were somehow cheating HM Revenue & Customs out of a large sum of Inheritance Tax.
The background to the gift is that Mrs Cameron made the gift to equalise the amounts received by her two sons from her late husband’s estate. Mr Cameron’s brother received a bigger share of his father’s estate and Mrs Cameron wanted to equalise the situation. In reality, Mrs Cameron had used an entirely legitimate tax-planning move that is carried out by many families in the UK every year. The rules covering this area are well established and have been in place for many years.
In brief, Inheritance Tax is charged on the death of a person on all of their assets above the £325,000 ‘nil rate band’ threshold at 40%. There are some exceptions to this: transfers between married or civil partners are deemed to be tax-free and gifts to charity are exempt from Inheritance Tax. There are rules that can increase the value of a person’s ‘nil rate band’ on death which are not covered by this article.
A common tax planning move for those fortunate enough (or unfortunate enough depending on your point of view) for Inheritance Tax to be an issue is to make life-time gifts to loved ones to decrease the value of their estate. These are known as ‘potentially exempt transfers’. The gift Mrs Cameron made to her son were covered by this rule. If a person makes a gift above a certain amount it will decrease the size of that person’s ‘nil rate band’ for seven years. If the person dies within that seven-year period, the gift will be brought back into account and there may be some tax to pay depending on the size of the person’s estate. If a person survives for seven years the gift is no longer accounted for and will no longer be included in any Inheritance Tax calculation. There are various conditions attached to this rule.
Inheritance Tax is a complex area and individuals or couples who believe that their estates may be liable to the tax on their death should contact a professional for advice on its impact on their affairs. Many people leave it too late to think about methods of reducing the impact of Inheritance Tax. Good tax planning involves a combination of lifetime giving, arranging your personal affairs in a suitable manner and a professionally drafted Will.
At Alsters Kelley LLP, we have a specialist team of people who can provide you with advice on Inheritance Tax and whether or not it will apply to you or your family. We have long-standing relationships with many families in the Coventry and Warwickshire area and they use us for all our legal needs.
If you believe that Inheritance Tax could be an issue for you or you just want some advice please contact John Padget, Solicitor in our Private Client Department on 01926 356043 or john.padget@alsterskelley.com for more information or to arrange an appointment.