Bid to stop rich exploiting ‘seven years’ loophole

IT is simple to avoid paying many taxes on wealth including inheritance tax, the Institute for Public Policy Research warns.

Its report says many wealthy families use the so-called ‘seven year’ rule to get round the single person’s maximum £325,000 tax-free bequest – or £650,000 for a couple. If someone survives for seven years after gifting large sums, no inheritance tax is levied.

To combat this, the report calls for IHT to be abolished and replaced with a ‘lifetime gifts tax’ on all gifts received during a person’s life over a certain amount, set initially at around £125,000. It states: ‘All further gifts would be classed as income ... and taxed at income tax rates.’ Small gifts and those between spouses and civil partners would be exempt.

The report says this would raise £15billion a year – £9billion more than current IHT revenue.

The report also says taxing capital gains and share dividends at lower rates than income from work ‘benefits those with wealth and encourages tax avoidance’.

Income tax rates range from 20 to 45 per cent, with capital gains at 10 and 20 per cent (18 and 28 per cent on property except main homes) and dividends taxed between .5 and 38 per cent.