12 February 2020
Inheritance Tax reform on the cards?
The All-Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness is pushing for a dramatic reform of Inheritance Tax (IHT). Naadim Shamji, solicitor in our private client team, examines whether this and other proposals are feasible and if they’re likely to happen.
"It is important to stress that the latest recommendations from the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness are only proposals at this stage, emanating from an informal grouping of Members of Parliament. This being said, many of the proposals appear measured and are likely to attract wide support from practitioners and parliamentarians alike.
Of particular interest is the idea of abolishing the complex Residence Nil Rate Band Allowance in favour of an increase to the normal Nil Rate Band Allowance to £500k per person. This would simplify inheritance tax returns for taxable estates, as well as provide an additional relief for testators without children.
Proposals to increase the annual limits on gifting from £3k to £30k in particular are likely to be cheered. The limit has been left unchanged since 1984, and had inflation been allowed to run its course this would have increased to £9.5k today, so would represent a significant increase.
There are also proposals to replace the seven year gifting regime with a charge on lifetime capital transfers set at 10% above the annual gifting limit. This would effectively remove the idea of using ‘potentially exempt transfers’ to escape inheritance tax after seven years, which may lead to fewer people seeking to avoid paying inheritance tax during their lifetime.
Whether the sum total of the changes proposed would lead to a fall or increase of tax revenues is still to be assessed.
The respected Society of Trusts and Estate Practitioners and the Resolution Foundation have been involved in the preparation of the latest proposals for reform, which lends them significant credibility. As the report outlines, inheritance tax is a ‘deeply unpopular tax’ even though fewer than 5% of estates actually pay it. A new government wanting to be seen to be on the side of families and preserving wealth is likely to catch on to a number of the proposals. Whether the changes will be wholesale or piecemeal will depend on the governments ambition for change."
If you’d like to speak to Naadim about IHT or any other private client issues, please email firstname.lastname@example.org or call 01753 889995.