Inheritance tax is currently chargeable at a rate of 40% on assets exceeding the nil rate band (NRB), presently £325,000. There are numerous reliefs, exemptions and rules on lifetime gifting which makes the regime difficult for many to understand. The last significant change came in April 2017 and introduced further complexity with the residence nil rate band (RNRB). The RNRB, currently worth £175,000, is an additional tax-free allowance which can be claimed, in simple terms, on estates of individuals who leave their residential property to their children or grandchildren, where the estate is worth less than £2million.
The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG) proposed changes to the inheritance tax regime in January 2020. In summary, they proposed replacing the current inheritance tax regime with a flat-rate gift tax which would be payable on both lifetime and death gifts at a much lower rate than the current 40% charge. To further simplify the regime, the majority of the existing reliefs would be abolished. The APPG recommendations would involve a complete overhaul of the existing system, and at a time when the UK is dealing with the effects of both Brexit and the Covid-19 pandemic, such a sweeping reform is perhaps unlikely.
APPG also recommended abolishing the capital gains tax uplift on death. At the moment, when someone inherits an asset they are deemed to acquire it at its market value as at the deceased’s death. This reduces the capital gains tax payable when the beneficiary decides to sell the asset as gains accrued during the deceased’s ownership are discounted. Capital gains tax is predicted to be a hot topic for the Spring Budget, so if the government decides to adopt a more piecemeal approach to reform, it could look at changing the rules surrounding the uplift.
No matter what the Spring Budget brings, it is recommended that people review their Wills and inheritance tax planning regularly, and especially when there are major changes in their personal and financial circumstances.
For further information please contact our private client team on 01753 889995 or enquiries@bpcollins.co.uk.
