There were a few interesting insights to be gleaned from the OTS Inheritance Tax Review, in addition to the much-covered suggestions for changes to the IHT regime.
First is the seemingly profound under-use of the ‘gifts from regular income exemption’. We have often made the point that this is the most underutilised and misunderstood IHT exemption and figures from the OTS seem to confirm this point.
In the 15/16 tax year, there were only 579 claims in total for the gifts from income exemption with well over half of these claims being for less than £25,000.
As such, it could be argued that there is a huge missed opportunity out there for additional IHT savings, without the hassle of the 7-year rule. Of course, the OTS has made some suggestions to abolish the gifts from income exemption, but for now it lives on and it might be wise to make hay while the sun shines.
Another notable point raised in the review is the fact that of the estates that paid IHT in the 15/16 year, only 20% had any form of lifetime gifting within the 7-year cycle.
Now of course in some cases, this would simply have been unaffordable, however surely there are a host of missed opportunities for IHT savings in the 80% of estates which had engaged in no gifting at all.