The Lemon Fool

With the possibility of a Labour/LibDem government introducing a Gift Tax we'd like to gift some cash to our grandchildren before the next General Election. Unfortunately the little blighters haven't had the decency to be born yet.

What legitimate action can we best take?

Give it to your children instead?

The Lifetime Gift Tax is only a proposal that has been floated - it's not even Labour policy yet. And trying to arrange your tax affairs on the basis of something that might happen seems risky to me....

(I suppose you could gift it to your children on trust for any future grandchildren with a reversion to to your children if no grandchildren arrive?)

chas49 wrote:The Lifetime Gift Tax is only a proposal that has been floated - it's not even Labour policy yet

I understand that it is LibDem policy.
https://www.tax.org.uk/media-centre/blo ... conference

Kantwebefriends wrote:With the possibility of a Labour/LibDem government introducing a Gift Tax we'd like to gift some cash to our grandchildren before the next General Election. Unfortunately the little blighters haven't had the decency to be born yet.

What legitimate action can we best take?

Do you have at least one of them, i.e, is there a "class" of individuals, grandchildren, that exist? If so a trust night work but hate to mention that trusts are likely to be even more within the field of sight of a left wing government and do have various downsides.

On a positive note if you get a Labour gov with Brexit ongoing they likely will not have much time for detailed smash and grab and if you get one post Brexit ,with say the economy in the mire ,again they will not have much time for subtle extraction of their pound of flesh as will be in crisis management mode.

To me gold bars and a spade are the way to go; providing advancing years do not lead to forgetfulness ,so maybe also pick up a metal detector and write a codicil somewhere about offspring needed to sweep the garden using it.

Kantwebefriends wrote:I understand that it is LibDem policy.
https://www.tax.org.uk/media-centre/blo ... conference

The crux of the idea seems to be here:

"Under the proposal, every individual would be given a lifetime tax-free allowance of £250,000. Transfers received beyond this allowance would be taxed in progressive bands of £250,001-£500,000 (20%), £500,001-£1 million (40%) and over £1 million (45%). Small annual gifts below a specified amount (not identified in the motion but identified as £3,000 a year by a spokesperson during the debate) would be exempt and not count towards the lifetime allowance, as would spending on a child’s education and transfers to spouses and charities."

Seems that you can gift £250K tax-free to an unlimited number of beneficiaries, so even a multi-million pound estate would escape taxation, given that you have a sufficient number of recipients. That seems like a generous loophole given that the current nil-rate band is £325K to £500K per estate.

No longer forgiving CGT upon death makes the proposed structure worse, perhaps, although if there continues to be no CGT on primary homes and ISAs then that can be mitigated.

The bigger problem I have is that right now there is no requirement to report or disclose gifts at all. You may make them at will, as many as you wish, to as many recipients as you wish. There is a requirement to retrospectively report them if you die within 7 years and IHT would be due, but not otherwise.

So such a change would require some framework to report gifts as they happen. And I can see loopholes there, at least for gifts that don't create a paper trail. So UK share and property transfers can be discovered, but gifts of cash, valuable objects, precious metals and gems and non-UK assets would be very difficult to track down by any third party.

My own view is that if we wish to go from an estate tax (which is really what we have now) to an inheritance/recipient tax, because it is seen as fairer, then that should be a revenue-neutral change rather than a rather blatant piece of confiscation.

Thank you, Lootman.

"Under the proposal, every individual would be given a lifetime tax-free allowance of £250,000."

I could imagine that quarter million being sharply reduced under Comrade Corbyn onaccounta the financial crisis, innit?

And presumably the exemption for expenditure on education would be suppressed as part of a war on private schools.

Taxes purportedly aimed at "the rich" tend eventually to impinge on the not-rich.

Kantwebefriends wrote:
I understand that it is LibDem policy.
https://www.tax.org.uk/media-centre/blo ... conference

I see that was at last year's conference. Does anyone know of any updates on that and other parties' proposals this year? The allowance for school fees is of particular interest. I need to reduce my estate and have been contributing to school fees for grandchildren but aware that they could become taxable on my death. As I have 4, who are all likely to go to university (whose fees would, I assume, be equally allowable, or would they?) and whose parents would appreciate more help, that would be a great boon. The £3000 annual gift allowance, only one now that I am a widow, goes nowhere towards fees these days. I cannot understand why is has not been updated to take account of the massive increase in fees over the long period since it was set at £3k. I think it is unreasonable that if I choose to spend my money on fees rather than cruises or other luxury items, my estate or the beneficiaries of school fees should be subject to tax on those in the event of my dying too soon. What is so magical about 7 years?

Has any alleviation of the pernicious SDLT been mooted in the case of downsizing/down valuing?

Lootman wrote:

Kantwebefriends wrote:I understand that it is LibDem policy.
https://www.tax.org.uk/media-centre/blo ... conference

The crux of the idea seems to be here:

"Under the proposal, every individual would be given a lifetime tax-free allowance of £250,000. Transfers received beyond this allowance would be taxed in progressive bands of £250,001-£500,000 (20%), £500,001-£1 million (40%) and over £1 million (45%). Small annual gifts below a specified amount (not identified in the motion but identified as £3,000 a year by a spokesperson during the debate) would be exempt and not count towards the lifetime allowance, as would spending on a child’s education and transfers to spouses and charities."

Seems that you can gift £250K tax-free to an unlimited number of beneficiaries, so even a multi-million pound estate would escape taxation, given that you have a sufficient number of recipients. That seems like a generous loophole given that the current nil-rate band is £325K to £500K per estate.

No longer forgiving CGT upon death makes the proposed structure worse, perhaps, although if there continues to be no CGT on primary homes and ISAs then that can be mitigated.

The bigger problem I have is that right now there is no requirement to report or disclose gifts at all. You may make them at will, as many as you wish, to as many recipients as you wish. There is a requirement to retrospectively report them if you die within 7 years and IHT would be due, but not otherwise.

So such a change would require some framework to report gifts as they happen. And I can see loopholes there, at least for gifts that don't create a paper trail. So UK share and property transfers can be discovered, but gifts of cash, valuable objects, precious metals and gems and non-UK assets would be very difficult to track down by any third party.

My own view is that if we wish to go from an estate tax (which is really what we have now) to an inheritance/recipient tax, because it is seen as fairer, then that should be a revenue-neutral change rather than a rather blatant piece of confiscation.

I remember. some years ago, being told by a friend whose father had died that before he died she had been writing cheques(either for him to sign or perhaps she had PofA) for £250 in favour of pretty well everyone she and her husband know on the understanding that they would return this money to them, possibly in cash. Not something I would have the audacity to ask for.

Bouleversee wrote:I see that was at last year's [LibDem] conference. Does anyone know of any updates on that and other parties' proposals this year? ... The £3000 annual gift allowance, ... I cannot understand why is has not been updated ... over the long period since it was set at £3k. ... What is so magical about 7 years? ...

Late to reply and I don’t follow any party conferences in such detail. You will recall, though, the thread below at Taxes which linked to the OTS second IHT Simplification report which covered some of the points you raise:

Office of Tax Simplification Inheritance Tax Review
viewtopic.php?f=49&t=18387

Tax avoidance for unborn grandchildren seems to me to be a little premature.

Dod

Lootman wrote:
The bigger problem I have is that right now there is no requirement to report or disclose gifts at all. You may make them at will, as many as you wish, to as many recipients as you wish. There is a requirement to retrospectively report them if you die within 7 years and IHT would be due, but not otherwise.

.

Just to be clear that is not always the case, there is more to it than that, see HMRC guidance here. I accept these tend to be slightly out the norm but think clarity of what is required to be reported is important.

https://www.gov.uk/hmrc-internal-manual ... /ihtm04067


"Lifetime transfers: what is an immediately chargeable transfer?

Any lifetime transfer that does not qualify as a potentially exempt transfer (PET) (IHTM04057) will be immediately chargeable to Inheritance Tax under IHTA84/S3 (1). Two transfers that do not qualify are a

transfer into a relevant property trust, because the gift is not to an individual or one of the specified trusts, see IHTM04058 and
transfer to a company, see example 2 at IHTM04060
There may also be an alternative charge on the property transferred under the gift with reservation rules. (IHTM04071)

There are four other transfers of value (IHTM04024) that are specifically prevented from being PETs. These are a

transfer by a close company, (IHTM04068) IHTA84/S94 (1),
the deemed disposition on the alteration in the capital or share rights (IHTM04069) of close companies, IHTA/S98 (3),
the release of a life interest (IHTM04063) between 18 March 1986 and 16 March 1987, and
the transfer of woodlands (IHTM04062) subject to an outstanding Estate Duty charge, which only qualifies for partial PET treatment."