Income Tax Hammers and Inheritance Tax Nuts

You could be hammered by the tax man if you are not careful about giving away an asset that you still benefit from. For example, have you transferred your house to your daughter while still living in it, or given your son a valuable painting that still hangs on your wall? If so, you could face a hefty annual income tax bill from next April. This entirely new tax charge was introduced as a way of countering certain inheritance tax avoidance schemes designed to take an asset (usually the family home) out of the owner’s taxable estate while still allowing him to use it. The government’s worry was that people were getting round the existing “gift with reservation of benefit” rules, which were meant to catch these schemes. Rather than tighten up the rules, the government has brought in a new tax charge that will apply retrospectively to any gifts made since 1986. Unfortunately the charge will bite even if there was no inheritance tax avoidance motive when the original gift was made. We have identified a wide range of “innocent” transactions that could be affected although there are various exemptions that may apply. If you think you might be caught by the new rules and you want advice on whether you fall within one of the exemptions, please contact:

Andrew Goldstone
Tel +44 (0)20 7440 7205
andrew.goldstone@mishcon.com