Could Inheritance Tax Be Cut Down Under New Reforms?
A group of MPs has published a report calling for inheritance tax to be abolished in its current form.
The All Party Parliamentary Group on Inheritance and Intergenerational Fairness (APPG) has proposed that inheritance tax, which is currently charged at 40% (or 36% if the reduced rate applies), should be replaced by a 10% rate of tax, unless the estate is valued at more than £2m, in which case the tax rate would rise to 20%.
In a bid to simplify the tax, the majority of tax reliefs, such as Business Property Relief (BPR) and Agricultural Property Relief (APR) would be scrapped. The spouse and charity exemptions would remain.
The uplift for Capital Gains Tax (CGT), whereby assets are rebased on death without any charge to tax arising, would also be abolished.
A 10% gift tax on gifts over £30,000 would be introduced. The rules bringing lifetime gifts made within seven years of death back into account for inheritance tax would be abolished. At present there is no immediate charge to inheritance tax on gifts to individuals (which are potentially exempt transfers); transfers into trust (chargeable transfers) are taxed at 20%, once the inheritance tax lifetime allowance of £325,000 has been exhausted.
The APPG report comes after the Office for Tax Simplification issued a report in July 2019, calling for inheritance tax to be simplified.
At present fewer than 5% of estates are taxable for inheritance tax and there is widespread dislike of the tax among the public. There is a perception that the very rich are able to avoid inheritance tax, through the use of exemptions such as BPR and APR, which are not available to families whose wealth is mainly tied up in their home.
The residence nil-rate band allowance (the additional allowance introduced in 2017 that allows qualifying estates to benefit from a higher tax-free allowance) is unnecessarily complicated and discriminates against those who do not have children (or grandchildren), or who do not own residential property.
It is likely that there will be a full consultation process before any reforms are implemented and any changes will not be introduced for some time.
If you have any questions on inheritance tax, please contact Angharad Lynn in our Private Client team on 020 7665 0904, or complete the form below.