Inheritance Tax review

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08/08/2018
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Inheritance Tax was introduced in 1986, replacing the Capital Transfer Tax. Since then, it’s been the subject of a continuous process of evolution and despite the change in social landscape, it remains the fact that many estates are not subject to IHT. There is, however, the likelihood that more estates will become liable in the future. This is partly due to increases in residential property prices, but also asset prices in general.

In February 2018, the Chancellor and the Financial Secretary to the Treasury requested the Office of Tax Simplification (OTS) carry out a review of a wide range of aspects of IHT: how they function today, the economic impact and identify simplification opportunities. The review is in keeping with the remit of the OTS to provide advice on simplification of the tax system.

The overall aim will be to identify opportunities and to make recommendations with regard to simplifying IHT from both a Technical and Administrative standpoint.

We expect the report, due to be published in the Autumn of 2018, will provide an initial evaluation of the IHT regime, analyse and evidence opportunities for simplification and include specific recommendations. This will be based upon evidence and consultation with a variety of stakeholders.

The review will consider how key aspects of the current IHT system work and whether they might be simplified. This will include a combination of administrative and technical questions which would include:

  • The process around submitting IHT returns and paying the tax due
  • Gift rules including the annual allowance for gifts, small gifts and gifts out of income
  • Other administrative and practical issues around routine estate planning and disclosure, including relevant aspects of probate work
  • Complexity arising from IHT reliefs and how they interact with the tax framework
  • The impact of any distortion this may cause to taxpayer's decisions, investments, asset prices, Trusts or the interaction with other taxes
  • The perception of the complexity of the IHT rules
  • The OTS will be guided to research widely with stakeholders, engage with HMRC and consider devolved tax powers, taking account of relevant implications of recommendations. 

Recent examples of the complexity of inheritance tax planning would include the changes to pensions which resulted in certain Inheritance Tax benefits being increased and the introduction of the residence nil rate band (RNRB). This is very complicated and causes a lot of confusion and indeed, recent research indicated that over 70% of the people asked have no idea how the RNRB works.

 It is difficult to speculate on what changes may well be made as we are only a few months into the tax review, however some areas muted by other professionals include changes to the seven year gifting rules, the annual £3,000 gift rule, the nil rate band and home rate band, pensions, capital gains tax rules, trust rules and the possibility of tax switching to the beneficiary and not the estate.

We will keep you informed of the results of the Autumn Review but in the meantime, it’s important to think carefully before making a change to your financial planning in contemplation of a tax change because expected changes don’t always happen! Should you require any advice your Investment Manager will be able to put you in contact with the appropriate adviser.

 

 

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