Families are being warned not to fall foul of a ‘hidden’ rule that means assets given away as many as 14 years before someone’s death could lead to inheritance tax (IHT) liabilities.
IHT’s ‘seven-year rule’ is relatively well-known and dictates that if a person dies within seven years of establishing a trust, its assets are usually taxable. Conversely, those surviving the seven-year period see the gift freed from their estate for IHT purposes. These gifts are known as ‘potentially exempt transfers’.
But a report in The Telegraph has recently highlighted a lesser-known stipulation. It says that if the person establishing the trust dies within seven years, other gifts made during a seven-year period prior to the trust’s creation will also be in the taxman’s sights.
Describing the situation as a ‘catch’ in a system that otherwise yields an ‘incredibly valuable potential get-out for families’, the report explains: “In this way, gifts made up to 14 years before death can attract tax.
“You would not need to be either especially unlucky or especially wealthy for your estate to find itself stung in this way.”
Tim Steele, Palmers partner and member of the Society of Trusts and Estates Practitioners, said: “This is a clear example of why professional, expert help should be sought in estate planning. At Palmers, our Will, Trusts and Probate services include advice on minimising liability for inheritance tax. For more information on how we can help families plan for a comfortable and worry-free future, please contact us.