Proposed reform of inheritance tax
Thursday, 20 February 2020
The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness recently issued a report suggesting a far-reaching reform of inheritance tax (IHT). These reforms are likely to have an impact on the tax affairs of most UK individuals and trusts.
Inheritance tax is a tax on the transfer of wealth, mainly on death. Property values have risen over recent years and, along with a static tax-free allowance (nil rate band), this means that more individuals and their estates have become liable to pay inheritance tax. The system is often criticised for being difficult to understand and unfair.
The new proposals aim to make IHT a simpler tax with less scope for avoidance.
There are additional proposals in respect of trusts and foreign domiciliaries (foreign nationals who are currently but not necessarily permanently resident in the UK). If you’d like to know more about this, please ask us for details.
As there is no means of knowing how much is given away via lifetime gifts (other than those into trust which are chargeable under the current regime), it’s difficult to assess the overall impact of the lifetime changes. However, those who make regular gifts up to their annual £30,000 allowance will be probably better off under the new regime; those that make larger gifts will be worse off at first but this may prove marginal overall, due to the new lower death rates.
The main losers from these proposals will be those with interests in family business and farms, where currently, Business Relief for Inheritance Tax (BPR) and Agricultural Relief for Inheritance Tax (APR) can potentially wipe out any tax charge altogether. This is compounded for those individuals by the proposed abolition of the free Capital Gains Tax (CGT) uplift on death.
There’s been no comment to date from the Treasury on these proposals, but this may be forthcoming on Budget Day 11 March. Anyone thinking about making gifts, or who are in the process of doing so, may wish to consider the impact of these proposals should they become law.
For more information or guidance on these inheritance tax proposals, please speak to your usual Larking Gowen contact. Call 0330 024 0888 or email firstname.lastname@example.org.