IHT - HMRC comes to senses over admin

Under new HMRC proposals, the thresholds at which chargeable lifetime transfers (“CLTs”) will need to be reported will be raised to £210,000 and £255,000.* Previously, the limits for the existing two tests were £10,000 for CLTs made in any one year and £40,000 for CLTs made over a ten-year period. HMRC’s proposals should mean that far fewer CLTs will need to be reported.  Great news for those advising clientsUnder these changes, the £210,000 threshold will also generally be applied to most trusts to determine whether a report is required at the ten year anniversary.HMRC is also proposing an additional third test against which the reporting thresholds would be measured. This test will be based on the value of the assets to be transferred.For example, consider someone who invests £300,000 in a discounted gift scheme. Given their age, withdrawals selected, sex and state of health, the retained rights (or discount) are valued at £120,000. The “before” value is £300,000; the loss to the estate is £180,000. The transfer would therefore need to be reported as under the new test, the value of the assets to be transferred, that is, £300,000 has exceeded the threshold of £210,000.In addition, HMRC proposes to reduce the cumulation period for reporting purposes from ten years to seven years. This will bring it into line with the seven-year period for calculating IHT on previous gifts, thereby introducing consistency and simplifying administration for advisers. HMRC have confirmed that the proposals are intended to apply with effect from 6th April 2007, subject to successful passage through Parliament later this year.Full details are at http://www.hmrc.gov.uk/cto/etes.htm. ·         The limit of £210,000 is 70% of the nil rate band (£300,000 in 2007/08) and the limit of £255,000 is 85% of the nil rate band. These limits will increase with the nil rate band accordingly. Both are rounded up to the nearest £5,000.

If you enjoyed this post, make sure you subscribe to my RSS feed!