Most lifetime gift givers are unaware of the various tax exemptions, and those who are aware are largely uninfluenced by them – which begs the question, is all this tax complexity really necessary?
HMRC has recently published a study by the National Centre for Social Research and the Institute for Financial Studies into people’s behaviours in relation to lifetime giving and inheritance tax (IHT). The study examined the behaviour of people defined as ‘gifters’: those who had, in the previous two years, made a single gift of £1,000 or more, or multiple gifts of greater than £250 totalling more than £3,000.
The government is currently reviewing whether the IHT legislation is fit for purpose and the results of this study should help it formulate an IHT system which is fit for the 21st century.
Overall, the findings show that the majority of gifters are not influenced by IHT. However, this appears to be because the gifters were unaware of the IHT rules, rather than their behaviour being driven by the tax consequences. The exception to this conclusion applies to 8% of gifters when making their largest gift.
65% of gifters gave away sums totalling less than £5,000 in the last two years and 20% gave away between £5,000 and £10,000. In fact, the majority of these gifts would be covered by existing exemptions and so would not attract IHT. With no immediate tax at stake, there is no reason why these people would be aware that IHT could be an issue. Only 15% of gifters are potentially exposed to IHT and in the majority of these cases, only if they die within seven years of the gift.
There are currently seven separate exemptions which apply to various types of lifetime gift. The study raises some serious questions about the complexity of IHT and in particular, people’s knowledge of IHT and its application to gifts made during their lifetime.
If so many people who are potentially affected are unaware of the exemptions, and those who are aware are largely uninfluenced by them, is all this complexity necessary? Rather than having a patchwork of small exemptions each with their own specific rules, a simplification would be welcome by all gifters. Either things should be simplified, or transactions between family members which make up the majority of small gifts, should be allowed on a more general basis.
It may also be worth considering that the amount of many of the small exemptions was set many years ago. What may once have been a generous exemption is now at a level which is basically trivial due to inflation.
Home >Articles > Who makes gifts and does IHT really matter?
Who makes gifts and does IHT really matter?
Most lifetime gift givers are unaware of the various tax exemptions, and those who are aware are largely uninfluenced by them – which begs the question, is all this tax complexity really necessary?
HMRC has recently published a study by the National Centre for Social Research and the Institute for Financial Studies into people’s behaviours in relation to lifetime giving and inheritance tax (IHT). The study examined the behaviour of people defined as ‘gifters’: those who had, in the previous two years, made a single gift of £1,000 or more, or multiple gifts of greater than £250 totalling more than £3,000.
The government is currently reviewing whether the IHT legislation is fit for purpose and the results of this study should help it formulate an IHT system which is fit for the 21st century.
Overall, the findings show that the majority of gifters are not influenced by IHT. However, this appears to be because the gifters were unaware of the IHT rules, rather than their behaviour being driven by the tax consequences. The exception to this conclusion applies to 8% of gifters when making their largest gift.
65% of gifters gave away sums totalling less than £5,000 in the last two years and 20% gave away between £5,000 and £10,000. In fact, the majority of these gifts would be covered by existing exemptions and so would not attract IHT. With no immediate tax at stake, there is no reason why these people would be aware that IHT could be an issue. Only 15% of gifters are potentially exposed to IHT and in the majority of these cases, only if they die within seven years of the gift.
There are currently seven separate exemptions which apply to various types of lifetime gift. The study raises some serious questions about the complexity of IHT and in particular, people’s knowledge of IHT and its application to gifts made during their lifetime.
If so many people who are potentially affected are unaware of the exemptions, and those who are aware are largely uninfluenced by them, is all this complexity necessary? Rather than having a patchwork of small exemptions each with their own specific rules, a simplification would be welcome by all gifters. Either things should be simplified, or transactions between family members which make up the majority of small gifts, should be allowed on a more general basis.
It may also be worth considering that the amount of many of the small exemptions was set many years ago. What may once have been a generous exemption is now at a level which is basically trivial due to inflation.
