Sean McCann, a prominent figure in the wealth management industry from NFU Mutual, expressed his frustration with the complex nature of inheritance tax. He referred to the seven-year rule as just another example of how convoluted the system has become.
McCann emphasized that inheritance tax has become a growing concern for families, as the numbers of affected individuals continue to rise. The intricacies of the tax often confuse people, leading to various misconceptions about its workings.
One common misconception is that if individuals give away money and pass away before the seven-year time limit, they will still receive a “tapering relief.” However, this is not the case. If gifts are made and the individual dies within seven years, the value of those gifts reduces the tax-free allowance of £325,000, potentially resulting in higher tax payments for the estate.
The tapering relief only applies if an individual gives away more than £325,000 within the seven-year period.
McCann also stressed the importance of not benefiting from the assets once they are gifted. For instance, if a holiday home is given to children, the donor cannot continue using it for personal enjoyment. Similarly, if a share portfolio or a buy-to-let property is gifted, the donor cannot continue receiving dividends or rent, respectively.
Navigating this tax requires meticulous record-keeping to ensure compliance.
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