Tax & Accounting News

Crackdown on 7-Year Inheritance Tax Gift Rule

14/05/2009

Families who use the seven-year gift rule to reduce their inheritance tax bill could be left with unexpected liabilities following a policy change.

Now HM Revenue & Customs (HMRC) has announced a thorough investigation into how people use the seven-year gift rule - which is intended to stop families avoiding the tax.

Any gift made within seven years of a person's death may be taxed. Until recently HMRC  raised any enquiries about these gifts within a 60-day period, but now has the authority to investigate gifts made before death several years after the estate tax returns are filed.

The tax authorities are trawling through financial information such as bank statements and pension plans, to make sure any gifts made during the seven years before the donor's death have been accurately declared. If families fail to complete paperwork accurately they could be fined.

The executors should carry out a proper review of the financial records of a person who has died for a seven year period and retain those records in case there is a an enquiry in the future.