Are we set for a massive Inheritance Tax shake up?
MPs have proposed that the UK abolishes inheritance tax and replaces it with a gift allowance system.
On Thursday, 30th January 2020, the All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) published a report recommending the abolition of inheritance tax (IHT) and the way it works now and replace it with an entirely different gifting regime.
During the consultation process, various leading policy research organisation and expert tax bodies gave evidence to the APPG IIF which helped during the deliberations.
The current IHT offerings can cause frustration to families and has the overall perception that the process is unfair and complicated.
The proposal from the group would tax lifetime and death transfers of wealth at 10% instead of the 40% under current legislation on estates valued over the nil-rate band.
These new proposals also see the agricultural and business property relief, the capital gains uplift on death and the seven year rule for potentially exempt transfers being abolished.
Gift allowances would also be replaced with one annual tax-free personal gift allowance of £30,000. If the limit is exceeded the excess would be taxed at 10%.
Estates that are valued over £2million would receive a 20% IHT rise. This the group hope would lead to less inheritance tax avoidance and would present the UK as an attractive domicile offering for wealthier individuals.
The nil-rate band would also be changed and ultimately replaced by a ‘death allowance’.
The APPG report also proposes to abolish potentially exempt transfers (PETs). Instead, gifts under £30,000 each year would be tax-free, and gifts above that threshold would be taxed at 10% immediately. No further tax would be payable at death on those gifts, giving families incentive to gift and certainty in planning.
All of these changes would hope to achieve the aim that the process is simplified.
The Society of Trust and Estate Practitioners (STEP), act as the secretariat for the APPG. Emily Deane TEP, Technical Counsel for STEP, said:
“The IHT system is hugely complex and we are strongly supportive of reform.
“The APPG’s report is a welcome addition to this debate as the Government weighs its options.”