Publication of the review into inheritance tax has been produced by the recommendations published in a report on inheritance tax, by THE OFFICE OF TAX SIMPLICATION (OTS).
This forms part of a proposed shake up of the longstanding gift rules.
The proposal is likely to cause controversy, as it would enable those able to give away large chunks of their assets to substantially reduce the estates inheritance tax (IHT).
About five percent of the estates are liable for IHT, charged at 40 percent above an individual’s £325,000 threshold.
Assets given away during an individual’s lifetime are exempt from IHT if the person lives for at least seven years after making the gift. If the individual dies within three to seven years, the tax payable tapers on a sliding scale.
THE OFFICE OF TAX SIMPLICATION have concluded that the seven-year rule making settling peoples financial affairs difficult for executors, one reason they quoted is that bank statements were only available going back six years, and it is often difficult for the correct information to be established.
In another big overhaul, the THE OFFICE OF TAX SIMPLICATION, have recommended to overhaul the rules in respect of the myriad IHT free gift allowances, to be replaced by one allowance per person.
Currently you can give away £3,000 a year without paying IHT, and unlimited gifts of less than £250 to other people. Parents can give £5,000 towards the cost of a child’s wedding and grandparents can give £2,500 IHT free.
THE OFFICE OF TAX SIMPLICATION found the allowances have not changed since the 1980’s, and these were confusing and poorly understood.
THE OFFICE OF TAX SIMPLICATION also question how Business Property Relief, which is designed to cut IHT when passing on family businesses, was being used to avoid paying IHT on investments in Aim – listed companies.
It should be noted that these are only recommendations, and they are not law. In order for them to be affected the appropriate finance act would have to be passed, and in view of the current legal issues surrounding the Brexit legislation, these proposals are not likely to come into force for some time in the future.