Could IHT actually be abolished?

Rumours are swirling that Inheritance Tax may perhaps be abolished. With the level of debt the country faces we belive reform is almost certain but it is unlikely to be aboloished.

Table of contents

Could Inheritance Tax be abolished?

Rumours are swirling that Inheritance Tax may perhaps be abolished.   It is tricky to navigate the current IHT regulations and many adults admit they find it baffling.  Despite the ability for a couple to pass on £850,000 free of IHT, receipts this year increased by 8% to £5.2 billion.In January, Philip Hammond, Chancellor of the Exchequer, took the unprecedented step of contacting the Office of Tax Simplification asking them to completely overhaul Inheritance Tax.

A call for evidence

In April the OTS published a call for evidence, and analysing the questions that it asked it is obvious they are considering a radical review.   Responses had to be returned to the OTS by 8 June and we are led to believe the report will be published before the 2018 Autumn Budget.

Intergeneration Commission Report

In May the Resolution Foundation, a leading economic thinktank, published their Intergeneration Commission Report.  It strongly recommended radical reforms of our IHT system.  The report stressed how inefficient the tax was.  Indeed it cited examples such as inheritances and other gifts totalled £127bn in 2015/16 but the only tax raised was £5bn.  This effectively equates to a rate of just 4%.  Between 2006/7 and 2022/23 IHT receipts are forecast to grow at less than a quarter as fast a rate as inheritances.

The receipts based system

The Resolution Foundation has recommended the current IHT regime is scrapped.  The feasible alternative is to move to a lifetime receipts-based tax rather like the schemes currently in place in both France and Ireland.   The concept appears tried and tested and would deliver both practical and perceptual benefits.  Crucially, it would also increase tax receipts.It would be a significant move away from our current system.  The receipts based system involves individuals having to keep track of cumulative receipts.

A cumulative gift allowance

However, gifts of £3,000 or less per donor per year and gifts between spouses, civil partners and charity gifts are excluded.  There would be a cumulative gift allowance of initially £125,000 tax free, with the allowance being indexed in line with inflation.Gifts between £125,000 and £500,000 would have a basic rate of 20%, and a top rate of 30% would apply thereafter.  The estimate is that such a change would generate £11bn annually compared to the forecast of £6bn under the current system.Some of the tax planning opportunities currently available would no longer be an option, namely the seven year cumulative gifting rule and the normal expenditure out of income exemption.

Agricultural relief and business relief

Agricultural relief and business relief which currently cost the Treasury £1.22bn, would also be better targeted to remove any predominantly tax-driven motivation for owning the assets.It is likely that the relief is to be capped, the minimum ownership period will be increased and the relief would ideally be limited to genuine farmers and business owners rather than the financially astute planners.The trust tax regime, arguably the most complex, is likely to be redesigned to reflect the lifetime receipt rules and the thinktank also has some suggests for pension inheritance.  These suggestions have caused concern as it recommends the removal of the tax free treatment of pension funds inherited on death of the member (under age 75).  Their suggestion is to make it liable to inheritance and income tax.

Capital Gains Tax on death

Their final suggestion is that capital gains tax apply on death, although restricted to additional residential properties and assets qualifying for business property relief and agricultural relief.

Summary

Of course these are only suggestions from the Resolution Foundation and it is entirely possible that the Office for Tax Simplification may have a completely separate set of regulations that they will introduce. If these suggestions are implemented, most hit would be small families, as there is a tax on the individual rather than two allowances from a couple gifting the money.One thing that is very clear is that referring to IHT as a voluntary tax will be a thing of the past.  This phrase was coined on the basis that careful planning can significantly reduce or even negate an individuals liability.Anyone who has held off making gifts for IHT planning purposes or for anyone who has deferred having that initial IHT discussion, now is the time to act.  It is vital to discuss this with an experienced, professional and impartial advisor, contact us now.

Join our Newsletter

Subscribe and get the latest updates about inheritance tax and Estate Planning into your mailbox.

We help people with over £1 million in current assets pay ZERO in UK inheritance tax

One stop comprehensive specialist advice - Tax, financial planning and legal advice service with 18 years experience.

What our clients say
Read our 159
    
reviews

"It is gratifying to finally come across an adviser who gives sensible ongoing advice which is very client focused."

Frank Hibberd

Retired gentleman

"It is nice to know that we can now be certain that our daughter will inherit our money without giving a large slice of it to the government ."

Tony & Sue Perriss

"Everyone's situation is different but having an initial discussion with Charles has really helped me personally navigate what can be a daunting subject."

Bobby Chadda

"I particularly want to thank you for the open and transparent manner in which you have serviced my tax planning needs since I first met you seven or so years ago. In arranging my tax planning through you, I have confidence"

Michael Mahon

Retired gentleman

"Charles was really helpful from the outset and quickly clarified our situation for us... I have used Bluebond for  IHT and other tax advice and they have been very helpful with both. Charles is a very experienced and knowledgeable individual and I highly recommend Bluebond's services."

Sam Attenborough

Retired gentleman

I have used Bluebond for setting up a discretionary trust for my children as well as inheritance tax and estate planning for my home and  other properties. Having searched for years, it was only after meeting and speaking with Charles that I felt confident enough to take these next steps, and I'm very glad I did. His ability to explain complex issues in simple terms and walk you through every step of the process is quite simply unparalleled.

Imran Qureshi

Excellent and comprehensive advice concerning all things financial in one place. Enthusiastic, Educational, Expert, value oriented, Professional and Polite are adjectives that come to mind as well as great attention to detail.

Deirdre Buckley

Inheritance tax is a minefield. Charles de Lastic of Bluebond Tax Planning is the best in the business at helping you to chart the path that is right for you to ensure your estate is structured in the most tax efficient manner.

Nicholas Dickinson

Charles provides clients with valuable insights that clearly demonstrate expertise built over the years. Charles and his team guided us through a estate planning journey and then addressing complex Inheritance Tax matters. They have been very transparent with their advice and cost. Overall an excellent service. Highly recommended

Shailesh Karia

The information contained in this web site is for UK consumers only.  Like most firms of solicitors and accountants, Bluebond Tax Planning is not regulated by the FCA. The content of this website does not constitute FCA regulated financial advice and all content is provided for general information purposes only. Bluebond is not responsible for any action you may take as a result of information on this site. All advice will be delivered on a personal basis once we fully understand your situation and our client agreements have been signed.

Copyright © 2024 Bluebond.co.uk
-
Copyright Notice
-
Legal Disclaimer
-
Terms & Conditions
-
Privacy Policy