Last year we discussed the possible changes to inheritance tax regulations following recommendations to the government of a complete overhaul of the current rules. Inheritance Tax (IHT) has once again come under the spotlight as the government homes in on ways to remedy the financial impact of COVID-19.
The current IHT regime has a 40% tax rate over the IHT Nil Rate Band threshold, currently £325,000 and is combined with a variety of reliefs and exemptions such as assets passing between spouses and business property relief (BPR) and Agricultural Property Relief (APR).
In summary, the report recommended two main changes. The first recommendation is to replace the current IHT rules with a flat-rate gift tax regime which would tax all lifetime and death transfers of wealth, likely between 10% and 20%. Most of the existing reliefs, including BPR and APR would be abolished. An annual gifts exemption of around £30,000 per individual is proposed and there would be a death allowance, likely to be set at a similar level to the current nil rate band of £325,000. Further recommendations were made for better reporting of lifetime gifts in excess of the annual exemption of £3,000.
The current IHT regime is seen to be complex as a result of the various reliefs/exemptions. Due to the IHT threshold having stagnated since 2009, it is also seen as outdated, despite the residence nil rate band being introduced more recently. With the March budget quickly approaching, could the IHT rules be adjusted to help fill the borrowing gap? And will the government take into account the above proposals? We will continue to provide updates on any proposals or changes.
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