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The end of Inheritance Tax as we know it? - news article image

The end of Inheritance Tax as we know it?

31 Jan 2020

2 minute read

Inheritance tax (IHT) is a tax on transfers of wealth, mainly levied on a person’s death. It is often criticised as complicated and unfair.
The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) has published a report recommending the abolition of inheritance tax (IHT) as we know it, replacing it with a different regime. If approved, its conclusions would replace the current IHT reliefs and exemptions, many of which contribute to the perception that IHT is complex and unfair.

The APPG proposals would tax lifetime and death transfers of wealth, at a low flat rate of 10%, compared with the 40% levied at present on estates valued above the nil-rate band (NRB). The report also recommends abolishing most of the reliefs, including agricultural and business property relief (BPR), the seven year rule for potentially exempt transfers, and the capital gains uplift on death. The gift allowances would also be replaced with one annual tax free personal gift allowance of £30,000 which would be taxed at 10% immediately if exceeded.

For estates above £2 million, the IHT rate would rise to a maximum of 20%, which evidence suggests is the rate at which people begin to resort to tax planning to minimise their IHT liabilities. By cutting rates, the proposal could lead to less avoidance while keeping the UK as an attractive place to live for wealthier individuals. The NRB would be replaced by a 'death allowance,' set at a similar level to the current NRB of £325,000, available only on death, irrespective of previous lifetime giving. 

The current system of potentially exempt transfers (PETs) allows large amounts of wealth to be passed on tax-free by lifetime gifts, if the donor survives for seven years. The APPG report proposes to abolish PETs. Instead, gifts under £30,000 each year would be tax-free, and gifts above that threshold would be taxed at 10% immediately and no tax would be payable at death on those gift. This will give families an incentive to gift and certainty in planning.

The taxation of trusts would also be simplified in the proposal and the ability to give away £325,000 tax free every seven years to trusts would be removed.

The full consultation can be seen here.

The end of Inheritance Tax as we know it? - news article image


David Rickwood

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