Taxman denies inheritance tax 'crackdown'

There were reports today in the media that the taxman was planning an inheritance tax 'crackdown'. This was in relation to gifts made by a deceased person within the last seven years of his life. Inheritance tax law provides for these to be caught by the inheritance tax rules. The purpose of this is to ensure that people do not decrease their inheritance tax liability by giving away their assets before they die, thereby leaving the taxman with a reduced estate to tax on their death.

So anyway, the story today was that the taxman was getting suspicious that some estates had escaped the charge to inheritance tax because gifts given in the seven years before death had not been declared to the authorities. So the taxman announced that whenever inheritance tax forms were submitted to him, he would be paying particular attention to 'lifetime transfers', in order to discover if any gifts had been given away by the deceased in the past seven years. Click here to read the taxman's statement, contained in the August 2007 edition of the IHT and Trusts newsletter.

This news sparked alarm all over the place. Tax advisers were concerned about the administrative consequences; bereaved family members and friends were concerned about being put through the stress of an investigation by the taxman; and opposition politicians have concluded that this is just more evidence of Gordon Brown's 'greed' for cash. There were also fears that the taxman would start aggressively demainding to see the bank statements of the deceased, and possibly even those of bereaved family members, as well as any other financial information that he thought necessary. I think that all these concerns and fears are well-founded.

Anyway, following the outcry, the taxman has now issued a statement that he did not mean to be quite as aggressive. Apparently, it was all down to a poor choice of words in the newsletter, which, the taxman concedes, was 'poorly worded and aggressive'. (I don't have a link to the statement, but here is AccountancyAge's report on it.)

Hmm. So that's the end of that, then. One wonders if the taxman would have backed down so quickly had there not been an outcry from all those quarters. While the taxman is perfectly entitled to collect tax due and owing, and while the original statement was not exactly proposing a change in the existing law, the taxman must recognise that there is a place for sensitivity, even in the collection of taxes. I think he has learned that lesson tonight. Let's hope that it's a lesson that endures.