This inheritance tax loophole allows unlimited gifts – take advantage before it’s axed


You’re not dreaming: finally someone has proposed some sensible changes to Britain’s maddening inheritance tax system.

No, I’m not talking about the Labour Party’s plan to do away with IHT altogether – which would just see it replaced with a much more ruinous “lifetime gifts tax” – but the proposals made by the Office of Tax Simplification.

Earlier today we explained how the OTS, an independent advisory body, has called for a radical overhaul of death duties. And a long time coming it is, too.

Whatever your views about the philosophical case for taxing assets as they pass down the generations, even the most wonkish accountant would agree the current hodgepodge of rules is all but impossible for a humble executor to navigate alone.

Most important among the OTS’s many suggested remedies is an increase in the annual cap on tax-free gifts, which was last raised in the year the Prince of Wales and Lady Diana Spencer got married.

If the Government adopts the proposals, as is more than likely given that it commissioned the study, the cap is expected to more than treble and allow families to pass on their wealth more simply than ever.

At the moment, thousands of families are being pushed towards questionable law firms touting “IHT-free” trusts or investing in volatile shares listed on London’s junior stock market, which normally qualify for relief.

But as part of this much-needed clearing-up of the gifting system, we may lose one of the most valuable, if least known, perks. The exemption for “normal gifts out of income” is little understood and consequently barely used. Just 579 estates made a claim using the perk in 2015-16, the latest year for which figures are available.

Unlike the conventional gifting allowance, there is no monetary limit – yes, you can give away as much as like.