Link: Budget 2004
The taxation of pre-owned assets was thrust into the spotlight in December’s pre-Budget report. Under plans confirmed in documents released after the main package of Budget announcements last night, the new charge will hit those who since March 1986 have given away assets and are continuing to use them – including those who have given their houses to their children but remain living there.
Accountants said the proposals, which take effect on 6 April 2005, would retrospectively catch transactions from the last decade, hitting those who have legitimately sought to minimise inheritance tax bills.
‘It is clear that the government is determined to introduce a punitive tax charge, retrospective in effect, on those who have taken the understandable step of trying to reduce the burden of inheritance tax on the next generation,’ said MacIntyre Hudson tax partner Nigel May.
‘It is very difficult but to have sympathy for those who have found themselves falling into inheritance tax purely as a result of property inflation.’
However certain proposals have been watered down. A parent who has gifted money to a child to help fund the purchase of a property, for example, will not now be liable for an income tax charge on that gift, should the parent move into the child’s property at a later stage in life.
The proposals also include a ‘substantial de minimis exclusion’ below which no income tax would be due on a previously-owned asset. However this likely to be only in the region of £50,000.
WJB Chiltern head of estate planning Nicholas Hughes said those affected faced three choices: dismantle the existing arrangements before 5th April 2005, admit defeat and make an election before 31 January 2007 for the enjoyed assets to remain liable to inheritance tax or risk the income tax charge.
‘It is back to the drawing board for all those who are enjoying the benefit of assets they have given away as a result of clever inheritance tax planning. Unfortunately, many will be in a worse position than if they had done nothing,’ Hughes said.
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