THE Government has launched a crackdown on people giving away property seven years before they die, because it believes that on average we are failing to declare 15% of our wealth for
inheritance tax purposes, writes Teresa Hunter.
HM Revenue and Customs will particularly focus on gifts of jewellery, paintings and other precious items, as well as cash,
investments, property and business assets passed on shortly before death.
Grant Thornton's head of tax, Mike Warburton, said: "When the Treasury adds up the wealth of the nation, and what is declared on death, there is a 15% shortfall. This is designed to find out where this money is going."
PWC's senior tax partner John Whiting added: "We all know what happens when someone dies. The family arrives and the paintings, jewellery and other precious items disappear."
The taxmen will trawl through bank statements, other financial records and property transactions to see what wealth was passing through your hands in the seven years before you died. Then they will request written evidence of what was given away, to whom and when.
Whiting said people must keep clear records: "It doesn't have to be a formal document. Just write yourself a letter, saying what you gave away, to whom, when."
Currently, all assets given away more than seven years before you die are exempt from inheritance tax and do not need to be included in your estate, or declared on your inheritance
tax return.
However, everything you owned within seven years of death must be included in your estate and taxed.
If your estate exceeds £300,000 then the excess will be taxed at 40%. This threshold rises to £312,000 for 2008/9 and £325,000 for 2009/10.
It is possible to reduce the bill if you give away property more than three years but less than seven before you die. Your executor can cut the tax due on any assets given away more than six years before death by 80%, by 60% for more than five years, by 40% for more than four years and by 20% for more than three years.
You can also give away £3,000 in any tax year, as well unlimited small gifts of £250.
You can give £5,000 to a child when they get married, £2,500 to a grandchild or £1,000 to anyone else.
Beat the tax
? Write a will
? Give away as much as you can seven years before death
? Keep a written record of all your assets and gifts made
? Use exemptions allowing you to make annual gifts or dispose of unneeded income
? Discuss plans regularly with your family
