Why we can all learn from David Cameron’s tax planning

The Prime Minister is still firefighting after more than a week of stonewalling, followed by partial statements and, eventually, the publication of his tax returns from 2009 to 2015.

While the debate rages on over whether there has been any wrongdoing on the part of Mr Cameron, the fact remains he and his family have acted within the letter of the law.

Latest details to emerge as a result of the tax return disclosure were that Mr Camerons mother Mary has given him two separate lump sums of £100,000 in 2011.

That led to calls from Labour leader Jeremy Corbyn for a possible fresh look at Inheritance Tax rules because, provided that Mrs Cameron survives for seven years following the gift, “it does actually reduce the level of inheritance tax that is available for the Exchequer as a whole.

Mr Camerons now public tax returns have thrust tax planning into the public consciousness. But, do we really want his tax issues to lead to more stringent rules for all of us?

The tax regime in which Mr Cameron and his family have acted is not just the preserve of the rich and famous. Whether the law changes under this Government or the next, Mary Camerons actions are perfectly legal as it stands and can be a sensible way to pass on hard-earned money and assets to the next generation, rather than it going into the Treasurys coffers. Helping our children out financially, is something most parents wish to do.

Mr Cameron inherited £300,000 from his father in 2010, before receiving the two sums of £100,000 from his mother.

It was a generous (and tax efficient) move which can be emulated by many families, whether they have a modest amount to pass on, or they fall into the same capital and income bracket as the Camerons. The tax treatment for Mr Cameron is the same as other UK taxpayers.

Inheritance tax may be payable if a persons estate, including their property, money and possessions together with the value of certain gifts made within seven years of death, is worth more than £325,000 when they die. The rate is 40% on anything above the threshold. Married couples and civil partners are able to pass their possessions and assets to each other tax free.

From April 2017, parents will each be offered a further “family home allowance (initially £100,000 rising to £175,000 in 2020/21). But, given property prices, even taking this extra tax-exempt allowance into account, many families will find themselves facing hefty inheritance tax bills.

When it comes to passing assets to children, grandchildren and other loved ones, cash gifts given over a period of time can be a sensible way to reduce the inheritance tax burden.

Under current rules, £3,000 per year in gifts can be given away tax free, as well as £5,000 as a wedding gift for your child, or £2,500 as a wedding gift to your grandchild. There are also small gift exemptions.

Individuals can, of course, make other lifetime gifts but these gifts may still count (for tax purposes) as part of the estate for seven years and could be subject to Inheritance Tax if the donor dies within that seven year period.

Downing Street defended Mary Camerons payment as “the kind of sensible, legal and perfectly proper tax-planning millions of us do. Its perhaps only natural that Mrs Cameron wished to help out her son and his young family with a cash gift.

Whether we agree with the current Inheritance Tax regime or not, it is the one we have, and families who wish to pass on their hard-earned wealth should be able and encouraged to do so. This is especially relevant today when for example some young peoples only chance of getting on the property ladder is by virtue of loans or gifts from parents or grandparents.

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