Following a review of Inheritance Tax the UK’s Office of Tax Simplification (OTS) has proposed that the seven-year period within which lifetime gifts are potentially liable to the Inheritance Tax should be reduced to five years.

Executors of the estate of a deceased person would only be required to account for gifts made within the five years preceding the date of death rather than the current seven year period.

The OTS also recommended scrapping the taper relief that applies to these lifetime gifts. Currently the full 40% rate of IHT applies to gifts made within three years of death but the rate is tapered in the case of gifts made within three and seven years before the date of death. The OTS report proposed abolishing the taper relief, although the consequence would be that there would be a “cliff-edge” in relation to gifts made within five years before death, for which the rate would rise from Nil to 40%.

The OTS also proposed that numerous IHT exemptions (including the GBP 3,000 annual exemption) should be abolished and replaced by a single personal gift allowance allowing a certain amount to be given in each year without IHT consequences.