Can Inheritance be Made Less Taxing?
With the change of government, change in inheritance tax may be afoot. In January, the All-Party Parliamentary Group for Inheritance and Inter-Generational Fairness released a report.
The report recommends the abolition of inheritance tax (IHT) and that it be replaced by a gift tax regime.
Currently, everyone has a tax free allowance of £325,000 with tax at the rate of 40% being paid on anything above that. Money left to a spouse is free of tax and in many cases the surviving spouse’s executors can claim unused allowances on death. The group has proposed taxing lifetime and death transfers of wealth at 10% where estates exceed the nil-rate band. So far so good. But there is of course a downside.
They also proposed removing the several current allowances. Business property relief and agricultural relief may not concern a lot of people but the Capital Gains Tax uplift on death is a different matter. There are many people today who own houses worth many times the price they paid for them. Currently, there is no Capital Gains Tax on that increase in most cases and beneficiaries inherit at the date of death valuation. If the estate is worth less than £325,000, they pay no IHT either, a nice tax free windfall.
The nil-rate band would be changed and ultimately replaced by a ‘death allowance’.
The report also proposes to abolish potentially exempt transfers (PETs) which enable gifts to be given tax-free if the donor survives seven years. Instead, gifts under £30,000 each year would be tax-free and gifts above that taxed at 10% immediately. On death, no further tax would be due on those gifts, which would enable more certainty in planning.
The proposed changes aim to simplify the process, but don’t bank on it!
‘Change in Inheritance Tax‘ Legal Life article for ‘Harborne, Edgbaston, Moseley and Neighbouring Areas‘, March 2020
by Joyce Bennell – Head of Private Client
Rubric Lois King Solicitors