Is a major overhaul of Inheritance Tax (IHT) on its way?
In January 2018, Philip Hammond asked the Office of Tax Simplification to make IHT fairer and easier to understand.
Recommendations have now been published and the following will be consulted and debated
amongst Treasury ministers.
It has been proposed to
- Introduce a single and more realistic ‘personal gift allowance’ to replace the £3,000 annual exemption and marriage gifts
- Reform the ‘normal expenditure out of income’ exemption
- Reduce the seven year ‘potentially exempt’ lifetime gift period to five and abolish Taper Relief
- Allocate the IHT threshold of £325,000 across lifetime gifts proportionally rather than chronologically and ensure the estate settles any IHT payable on lifetime gifts as opposed to the recipient
- Exempt all life insurance policies from IHT
- Review reliefs which allow businesses and farms to be passed to the next generation IHT free
The most eye-catching proposal is in relation to Capital Gains Tax (CGT). It has been suggested that where a relief (i.e. BPR or APR) or an exemption (i.e. spousal exemption) applies on death, the recipient will acquire the asset at its historic cost, not its value on death. If enacted, this would mean that if the asset were subsequently sold, CGT would be payable.
These are only recommendations; our current IHT and CGT legislation hasn’t changed yet. If some of the above proposals are enacted, they will be at a cost to the taxpayer.
The Office of Budget Responsibility predicts that IHT will raise in excess of £5bn this financial year (more than double the amount collected 10 years ago). There’s nothing more certain than death and taxes; it makes sense to know exactly how IHT will affect you and your loved ones in the future.
Call Katie or Sarah on 01223 810100 for friendly help and advice.