Haha and now the press are eating him over what they see as an inheritance tax dodge.
Yes they are, and it's pathetic. The "dodge" is merely to use the tax rules as they have been for years. Anyone with an estate over £325k *which is almost everybody that owns their iwn house clear of mortgage, and anyone whose equity is over that amount even if there is one, is missing out if they don't at least consider exactly the same thing, and an idiot if they don't do it unless there are compelling (non-tax) reasons for not doing it. Sometimes, broken family relationships mitigate against.
Remember, every individual has an allowance of £325k. Estates passed between spouses are not subject to IHT but will be on passing to offspring. The effect is 2x £325k of allowance between both spouses.
So if your Dad has a £600k house, and passes it to you (or you and your siblings), the taxable value is £275k, so 40% IHT means tax of £110k. Result, you get £490k and the taxman gets £110k. What parent wants that £110k to go to HMRC, instead of their kids?
Now suppose your Dad gives you £325k. No tax is due, as that's the allowance. The remaining £275k goes to his spouse, who then subsequently dies, meaning that any inheritance has her £325k allowance, so IHT will only be due if the rest of her estate excluding the bit she inherited exceeds £50k.
However, before she dies, she can give you money, for example, £200k, and it's simply a gift, with no tax due UNLESS she dies within 7 years, because then, the recipient, you in this example or Cameron in the real case, will have to pay IHT on it. How much IHT depends on how much time elapses between gift and death, and the total value in 7 years. Less than 3 years and it's the full 40%, and a reducing sliding scale after that.
If she had £250k before getting the money from your Dad, she will have £525k after getting it. The first £325k is covered by her allowance, leaving £200k to be tax. Unless she gives it to you now, and then survives more than 3 years. If she doesn't, the same tax is due as if your Dad gave you that £200k. If she survives 7 years or more, that £200k is IHT-free, and if she survives somewhere in-between, you'll pay some tax, but less than the full 40%.
So one utterly legal way of reducing IHT for the wealthy is to 'gift' £45k per year, on a rolling basis. Three kids = £15k per year, per kid, and that comes close to maxing out the IHT 7-year gift examption. There are some other smaller annual gift allowances to kids, grandkids, etc.
Anyone with substantial wealth is likely to be doing something like this, unless good reason that have nothing to do with tax prevent it, like not wanting kids to get any inheritance. This isn't tax avoidance. It's very basic tax planning, using the IHT tax rules exactly as they were intended to be used, and is no more tax avoidance than anyone putting money in an ISA rather than a standard building society account is using a "dodge". And it's what happened with Cameron's so-called "dodge".
All Cameron's dad did with this transfer to spouse was to use exactly what the law intended. Until fairly recently, something like 15 years ago, each spouses IHT allowance (less than £325k then) was non-transferable, so if the assets of one spouse passed to the other, only one lot of IHT allowance applied. The government (Labour) changed that introducing that transferance precisely to have this effect. It was possible before then to achieve the same thing, but only by keeping assets 50:50 between partners. That meant separate bank accounts not joint, having two shareholding with 50% in each name not a single joint holding, making sure that property (like houses) was legally separated so each party absolutely owned 50%, rather than a single joint ownership. It was a lot of faffing about, and it all became unnecessary when the government made the IHT allowance trabsferable between spouses.
