In July, The Office of Tax Simplification (OTS) published its report on how Inheritance Tax (IHT) could be simplified, providing 11 key findings.
The main areas for consideration were lifetime gifts, how IHT interacts with Capital Gains Tax and how farming businesses are dealt with. There’s a handy summary on page 13 of the report but the headlines for individuals are:
- There should be an overall and higher gift allowance that is exempt from IHT.
- Currently gifts made over 7 years between gifting and death are exempt, but OTS calls for this to be reduced to 5 years and taper relief should be abolished.
- Gifts made outside of this period should not be taken into account for IHT calculations, currently known as the 14-year rule.
- Capital gains uplift should be removed from exemptions/relief so that asset acquisition is treated at historic base cost.
- All death benefit payments from life insurance should be tax free, without it having to be written into the trust.
The OTS are, of course, looking for simplification but also for the tax liability rules to be much clearer. There is a lot of anti-avoidance legislation to be considered which is now in place across the board, so this should make it easier for clarification on IHT to be applied.
However, whether these changes will become law is yet to be seen. Brexit is putting legislation changes on the back burner, but we await the Autumn Budget for further confirmation.