Liberal Democrat Treasury spokesman Lord Newby wants the length of time needed for gifts to be IHT exempt to be increased from seven years to 15 to take account of rising life expectancy.
In a report for the thinktank Centre Forum, Tax and the Coalition: fairness and responsibility, Newby argues that the current seven-year limit is too short and effectively makes IHT a voluntary tax for many.
Speaking to Money Marketing at the Liberal Democrat conference in Birmingham last week, Newby says: “One of the arguments about the seven-year period was people give money to their children to go to university, set up a home or whatever. That might work logically if people’s life expectancy was far lower but when it is somewhere around 80 or 90, the idea that seven years is a meaningful figure is no longer valid.”
He says ideally gifts given at any point would be liable for inheritance tax but the task of keeping records for long enough makes this impracticable.
Fellow LibDem peer, Lord Thurso, says there are added complexities that need to be addressed as part of any reform.
He says: “A lot of people do not give cash, they give a family house or other things which are liable to a gains tax. Gains tax is less than inheritance tax but it is paid immediately and then you have to live seven years and if you do not the gain is set against the inheritance tax. So I think there is more work to do on the idea.”
Newby writes in the report that closing all IHT loopholes would be a “Sisyphean” or unending task but that extending the seven-year limit would make the tax more effective.