12 June 2018

Simple is always better, especially when it comes to inheritance tax!

We look forward to hearing the output of the Inheritance Tax (IHT) regime review this Autumn. Simplification in IHT matters would certainly be beneficial.

The Chancellor has instructed the Office of Tax Simplification (OTS) to undertake a review of the Inheritance Tax (IHT) regime.  The scoping document, published in February, sets out the aim of the review as identifying opportunities and developing recommendations for “simplifying IHT from both a tax technical and an administrative standpoint”.

IHT applies to only around five per cent of taxpayers however it is of particular relevance to those in the farming and land and estate sectors as a key component of tax planning.  This review could have significant implications for farm and estate businesses.

The OTS has issued a call for evidence and published a survey which seeks to gather data about individuals’ experience of IHT.

The call for evidence consisted of 20 questions covering administration, lifetime gifts, businesses, farming, charitable giving, other areas of complexity and the wider  IHT system. However any other general of specific comments were welcome.

Responses have now been collated and the OTS will publish a report in the autumn that:

  • Provides an initial evaluation of aspects of the current IHT regime, and what they mean for taxpayers, HMRC and the Exchequer;
  • Identifies opportunities for simplification of IHT supported by analysis and evidence; and
  • Offers specific simplification recommendations for government to consider.

There may be some easy wins for the OTS, such as increasing the annual inheritance tax exemption from £3,000.  The exemption, which is available to every individual, allows gifts of up to £3,000 to be made in one year or if not used the exemption can be rolled forward to the following year allowing up to £6,000 to be gifted in the second year, without the need to report these.  This exemption hasn’t changed since 6 April 1981 and this would seem to be an ideal opportunity to increase it. 

Many of the existing IHT reliefs, such as Business Property Relief and Agricultural Property Relief are extremely valuable to business owners, and in many cases ensure that on death, the business or the farm can be passed to the next generation intact.  Without these reliefs, many businesses might need to be broken up or sold completely in order to settle tax liabilities.  It is hoped that the report from the OTS and their recommendations will not see the demise of these reliefs.  It could indeed be argued that it would be helpful to see Business Property Relief expanded, so that it specifically covers areas such as furnished holiday lets which until now have been the subject of so many court cases.  Most of these have settled in HMRC’s favour, with Business Property Relief being denied in relation to furnished holiday lets. 

Although the taxation of trusts does not impact on everyone, some simplification in IHT matters relating to these vehicles would be welcome, particularly in relation to the filing requirements for exit charges and 10 year charges.   

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