Changes afoot for Inheritance Tax (IHT)
7th April 2020 by Changes afoot for Inheritance Tax (IHT)
Despite Brexit and Coronavirus, the Government found time to review Inheritance Tax (IHT) and propose radical changes to it.
IHT is seen as unfair, the total net wealth of private households of £14,628 billion is not shared equally. The aim is to ensure that higher value estates which currently benefit from so many reliefs and exemptions actually pay some IHT.
Rather than tweak existing rules the preference seems to be a replacement for IHT currently levied at 40% after available exemptions/reliefs.
Currently we have various generous exemptions and reliefs that are tax free which are
- £3000 annual gift exemption which can be rolled over to the following tax year, but can’t be carried over any further.
- Gifts to your children or other members of your family, so long as you live more than seven years from when you make this gift.
- The making of regular gifts out of surplus income. For example, regularly paying into your child’s savings account.
- Business property relief (BPR) i.e. certain business assets which qualify can benefit from 100% or 50% exemption as appropriate
- Agricultural property relief (APR) i.e. farming businesses/assets which qualify have 100% exemption
- Residence nil rate band (RNRB) – an additional £175,000 relief (on top of £325,000) for estates which leave a residential property to direct descendants e.g. a residence passes to your children
- Gifting to a charity during your lifetime or in your will – reduced rate of IHT to 36% if the value gifted to charity is at least 10% of the net estate at the date of death.
Under suggested proposals ALL of that could change to:-
- ONE annual gifts allowance of £30,000 which cannot be carried forward – above that tax levied at 10%
- NO renewable gift allowance every seven years
- NO BPR or APR
- NO residence nil rate band – total exemption as between spouses of £650,000 (i.e. £325,000 each)
- IHT would be charged at 10 – 20%
- Charitable exemption still available but NO reduced rate if more than 10% given away.
These are sweeping proposals but they are neither finalised nor enacted by law.
Despite these times of uncertainty, one thing is fairly guaranteed – IHT is going to change and the generosity of existing exemptions and reliefs will undoubtedly be whittled away if not utterly withdrawn.
If you need any IHT or tax planning advice in the light of these proposals then please contact one of our Private Client Team who will be happy to help.