Inheritance Tax

Could you help to simplify IHT?

The Office of Tax Simplification is asking on views to simplify Inheritance Tax

The Office of Tax Simplification (OTS) has requested anyone with a personal experience of Inheritance Tax (IHT) to provide feedback on how IHT could be simplified.

The Resolution Foundation has proposed that Inheritance Tax should be scrapped and replaced with a new “lifetime receipts tax” of £125,000 per person, coupled with a much lower tax rate. So, all the beneficiaries of an estate would be able to each receive £125,000, and if the inheritance exceeded that figure the beneficiary would then pay tax at either 20% or 50% depending on the excess inherited. They go on to suggest that this will help to rebalance wealth by limiting the amount of large financial gifts favoured by the very rich and encouraging the wealth to be spread between more people.

The proposed new lifetime receipts tax would apply to those benefiting from any inheritances. Currently IHT is charged on the deceased’s estate, and only for any inheritances beyond a lifetime allowance (currently £325,000 per estate or £650,000 for most married couples and civil partners). All lifetime gifts would be included in the new tax, excluding gifts of £3,000 or less. Currently, only gifts made within the 7 years prior to a person’s death are counted. As now, financial transfers within a marriage will be exempt.

Resolution Foundation’s analysis suggests that by setting a lifetime limit at £125,000, followed by a 20% tax rate up to £500,000 and 30% after that, the government could raise an extra £5bn by tax year 2020/2021.

The think tank claims that taxing individual recipients of bequests rather than the estate as a whole, could encourage families to spread their wealth.

The think tank also sets out proposals to restrict business property and agricultural property reliefs as it  believes these exemptions are widely abused as a way of avoiding inheritance tax. A proposed ‘farmer test’ (as used in Ireland and France) would be introduced to check that at least 80% of the assets being passed on are actually agricultural property.

Any gifts made to a charity during someone’s lifetime or under the terms of their Will are exempt from tax. Currently, if 10% or more of a person’s net estate is given to charity under the terms of their Will, inheritance tax may be payable on the whole estate, but at a lower rate of 36%. Complex rules are also being proposed for the IHT-exempt and non IHT-exempt parts of the remaining balance of the deceased estate.

If you would like to provide your opinion to the Office of Tax Simplification you can register your responses via the online survey before 8 June 2018.

For further help and advice on the above or with Wills, Trusts or Probate please contact our Wills, Trusts & Probate team on 01733 882800 or email info@hcsolicitors.co.uk.

Author

Andrea Harrod, Solicitor

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.