Major changes proposed to inheritance tax (IHT) could alter your estate planning.
The Office of Tax Simplification (OTS) spent 18 months looking at IHT and has now produced two linked reports. The second contains a wide range of proposals that could have a big effect on your estate planning. These include:
- You should only have to live five years – not seven, as now – before a lifetime gift ceases to be subject to IHT. The little-understood taper relief should also be abolished.
- The rules for IHT business property relief (BPR) should be aligned with those for capital gains tax (CGT), resulting in fewer businesses qualifying for the relief. The CGT rules at death should also be reformed.
- A new single ‘personal gifts allowance’ should replace the current £3,000 annual exemption and the marriage/civil partnership exemption (up to £5,000 for parents). Inflation-linking would have increased the exemption to around £12,900.
- The level of the small gifts exemption (still £250 as in 1980) should be reconsidered. Inflation-linking would have increased the amount to just over £1,000.
- The rules for normal expenditure gifts should be reformed or replaced by a higher personal gifts allowance.
- Pay-outs under term assurance policies should be free of IHT. Currently, it is necessary to write such contracts under trust to keep them out of the policyholder’s estate on death.
Like most reforms, the OTS proposals would create winners and losers. To understand which category you would fall into, and any pre-emptive actions that can be taken with your financial planning, please talk to us.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.
The Financial Conduct Authority does not regulate will writing, trusts and some forms of estate planning.
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