IHT Rules Tightened

Inheritance tax rules have been tightened this week to prevent homeowners from avoiding the tax by disposing of their assets before they die.

Under the ?pre-owned asset? regulations, homeowners will no longer be able to avoid paying the taxman by disposing of part of their property before they die while continuing to live in it.

Taxpayers will have a choice either to take the asset back into their estate, on which inheritance tax will be payable at 40% of the value over £263,000, or they will be able to pay an income tax on the asset at 5% of the value.

Previously, the ?gifts with reservation? tax had meant that a property could not be given to an inheritor as a gift in order to avoid the tax. But many people continued to avoid paying by giving away a portion of the property. The new regulations have closed this loophole.

Another avoidance technique used by many homeowners is to invest in specialist ?double trust? schemes. They now fear that the new regulations could incur a double tax hit due to the complex timings of the schemes.

However the Inland Revenue confirmed yesterday that the regulations will eliminate the double charge and that only one inheritance tax charge will be due whatever the timing of the estate owner?s death.

The new regulations are due to come into force on April 6.