If only we had a crystal ball! The Office of Tax Simplification have produced two reports on the reform of inheritance tax in the last couple of years and the All Party Parliamentary Group also produced one in January of this year. Many of us were surprised that none of their recommended measures were included in the spring budget.
There is also going to be an autumn budget, however, and the economic landscape has changed somewhat. The Chancellor has given few details on how the considerable costs of coronavirus will be met and he has not ruled out higher taxes, which the Institute of Fiscal Studies regard as inevitable. So IHT reforms could be back on the table and these are some possibilities according to the reports: –
- Replacing lifetime gift exemptions (e.g. £250 per recipient, £3,000 annual exemption, various on marriage etc) with a single personal gift allowance;
- Reforming or replacing the ‘normal expenditure out of income’ exemption;
- Abolishing taper relief on lifetime gifts but shortening the seven year period of looking back to five years;
- Removing the CGT uplift on death when 100% business property relief applies;
- Revising the IHT rates down to 10% and 20% (for estates over £2m) (from 20% and 40% currently for lifetime and death transfers respectively) but withdrawing ALL reliefs other than to spouse or charities;
- Abolishing the residence nil rate band;
- IHT payable on lifetime gifts exceeding £30,000 per annum;
- NO nil rate band other than on death.
The most generous reliefs at the moment are seen by some to be the Agricultural Property Relief and Business Property Relief which can give complete exemption subject to a few qualifying conditions. The suggested reforms would remove these and 10% or 20% tax would be calculated immediately and payable over 10 years by interest free instalments. So if you have a family business it may be worth thinking about succession planning and taking any necessary steps sooner rather than later.
At the moment capital gains on gifts of qualifying agricultural and business property can be held over so the donor pays no CGT immediately. The government has recently announced a review of CGT so this holdover relief may also be subject to change.
Without a working crystal ball no one knows whether any changes will be made to the capital taxes regime in the autumn or beyond, but it is worth considering your estate and whether you can take advantage of any of the current reliefs available, which are unlikely to get more generous in the current climate.
Do please get in touch with one of the team if you have any questions or to discuss your personal circumstances.