The IHT threshold has stagnated since 2009, resulting in a regime which has failed to keep pace with inflation and rising property prices. In recent years there have been various reforms to IHT, however, the proposed reforms go beyond mere simplification and seek the complete overhaul of the current rules.
The following key recommendations have been made:
- Introduction of flat-rate gift tax payable on both lifetime or death transfers of 10% and 20% on death for estates in excess of £2m;
- Introduction of an annual lifetime gift allowance of £30,000;
- The “nil rate band” (presently £325,000) would be replaced with a death allowance at a similar level, available only on the death of individuals;
- Abolition of business property relief and agricultural property relief;
- The IHT exemption on gifts seven years prior to death would be abolished;
- Abolition of Capital Gains Tax uplift on death but any gain can be held over;
- The exemption for lifetime and death gifts to spouses and charities would remain; and
- Transfers to a trust would trigger a 10% charge (if over the £30,000 annual allowance).
The key principle of the proposals is that the IHT regime should be "low enough for the tax to be broadly based without the need for complex reliefs".
If the proposals are taken forward by the Government, it is likely that there will be a period of consultation before any reforms are made. It is therefore uncertain what the future of the IHT regime will look like, although it is important to regularly review your circumstances and obtaining professional advice should be considered on an ongoing basis.
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For legal advice regarding inheritance tax, please contact our Private Client Department.