The BBC recently reported that Chancellor Sajid Javid had hinted that the next Budget, expected before the end of this year, may include changes to – or even abolish – inheritance tax (IHT).
With taxpayers being subjected to various taxes during their lifetime, the Chancellor appeared to acknowledge that there is an issue with being taxed again on death on capital arising from income already taxed in our lifetime.
Supporting the view that the IHT regime is in need of change, earlier this year the Office of Tax Simplification issued its report recommending not abolishing but streamlining IHT by removing unnecessary complexity from the rules governing the “death tax”. The OTS’ suggestions include: -
- Introduce a new overall personal gifts allowance replacing the annual exemption and wedding gift exemption.
- Assess the appropriate level of the personal gifts allowance and reconsider the level of the small gifts exemption.
- Simplify or replace the exemption for gifts made as normal expenditure out of excess income.
- Allow large gifts to fall out of the tax net after 5 years, rather than 7.
- Abolish taper relief on gifts.
- Allow for gifts made outside of the current 7-year period to be ignored, i.e. abolish the “14-year rule”.
- Revise the way the Nil Rate Band is applied to lifetime gifts and clarify who is liable for the IHT due.
So what does all this mean for you and your IHT planning?
There is of course no guarantee that the (next?) Chancellor will go ahead with his changes or that any of the OTS’ suggested changes will ever be made. However, whilst the country’s political parties are deciding on the way forward (with or without changes to taxation), it is well worth reviewing your personal affairs now by talking to a suitably trained solicitor who can also refer you to a financial adviser. Waiting for any changes to IHT to be introduced may create unnecessary further uncertainty for you and your loved ones in these already very uncertain times.
If you would like us to help you review your IHT position and/or assist with the preparation of a tax efficient Will, please contact one of our solicitors, all of whom have additional qualifications from the Society of Trust and Estate Practitioners (STEP).