Delayed Inheritance Tax reforms

Following two reports by the Office of Tax Simplification in 2019, and a further all-party parliamentary group (“APPG”) review published on 29 January 2020, the absence of any Inheritance Tax changes in the Chancellor’s budget was surprising.

Inheritance Tax (“IHT”) is unofficially ‘Britain’s most hated tax’ and therefore a reduction in the rate of this and the removal of much of the complexities would seem welcome. Although the potential abolition of business property relief and the removal of the tax free uplift for Capital Gains Tax (“CGT”) would cause concern for many business owners hoping to pass their business on to the next generation.

It would take a brave Chancellor indeed to completely overhaul the IHT provisions and introduce all the recommendations made by the APPG. However, for the prudent taxpayer they are worth noting, as some changes are sure to come in the not too distant future.

The key APPG recommendations are as follows:

– The nil rate band of £325,000 to remain the same, but be renamed ‘the death allowance’.

– The spouse and charity exemptions to remain as they are, with removal of all other reliefs, including business property relief.

– No tax free uplift on death for CGT purposes, the beneficiary instead receiving the assets at the deceased’s acquisition cost.

– Replacement of the 40% IHT rate with a 10% death tax rate (increasing to 20% for estates worth more than £2 million).

– The removal of the potentially exempt transfer provisions, to be replaced with the introduction of a 10% tax on lifetime gifts over the annual allowance.

– An allowance of £30,000 per annum, to replace all other gift exemptions, including the gifts out of income provisions.

– Unused pension funds remaining at death to no longer be exempt and to instead form part of the chargeable estate.

– Bringing non-domiciled individuals within IHT earlier, after 10 years of UK residence in the last 15 years.

– The removal of the beneficial treatment afforded to excluded property trusts.

– Annual charges for trusts based on the trust assets, in place of the current ten year charge.

If you have any concerns regarding the recommendations or wish to simply discuss your current IHT exposure with someone, please contact Gemma Hedges on 023 8046 1259.