The inheritance tax dog that didn’t bark…
One of the few surprises in March’s Budget was that the Chancellor never mentioned inheritance tax (IHT) or expected simplification measures.
Before 11 March there was much speculation that the Budget would introduce a range of changes to IHT. This was more than just the usual press kite-flying, as the Office of Tax Simplification (OTS) had published two reports on the reform of the tax: the first emerged in 2018, with the second issued last July, in time for the Autumn Budget that never happened.
The OTS made several proposals for simplifying IHT including:
- Replacing the many lifetime gift exemptions, such as the £3,000 annual exemption, with a single personal gift allowance.
- Reforming or replacing the valuable, but little used, exemption for regular gifts made from income.
- Abolishing the taper relief on lifetime gifts tax while simultaneously shortening the seven-year look-back period for lifetime gifts to five years.
- Removing the capital gains tax (CGT) exemption on death when 100% IHT business relief applies.
In the meantime, for some families, their potential IHT bill falls by up to £20,000 from 6 April as the residence nil rate band increased by £25,000 to £175,000 (subject to taper for estates above £2 million). Taken together with the nil rate band, still frozen at £325,000, that means a couple could now have a combined total nil rate band of £1 million.
The extent of work done by the OTS and the many issues it flagged up mean that the reform of IHT is unlikely to disappear from the Treasury’s agenda. Proposals may therefore emerge in the next Budget, due this autumn. It is conceivable that, by then, the Chancellor will be looking at IHT as one way of raising extra revenue to help pay down the debts building up in the wake of the Covid-19 pandemic.Talk to Barnes Roffe today