Could Inheritance Tax be Cut by 30%?Feb 12, 2020
Inheritance tax of 40% could be cut to 10% under a radical overhaul proposed by a cross-bench group of MPs
The All-Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness (APPG) has called on the Government to consult on serious reforms to inheritance tax which would reduce the rate from the current 40% to just 10%.
However, the reforms would be balanced against the abolition of a series of reliefs, including the current seven-year rule, which removes IHT liability from assets if gifted seven years before death.
Its report said: ‘A flat-rate gift tax with fewer reliefs would be simpler, more broadly based, lead to less avoidance.’
Currently, there is a nil rate band (NRB) allowance of £325,000 per person which can be combined among married couples. An additional £175,000 per person can be added to the allowance (for the 20/21 tax year) due to the residence nil rate band (RNRB), if the deceased owns a property.
The APPG have suggested that the NRB allowance should be kept at a similar level, but that the RNRB allowance should be scrapped.
The report also proposed a £30,000 lifetime allowance on gifts, but that HM Revenue and Customs should be given greater powers to track gifts via electronic reporting.
Also proposed is the removal of business property relief and AIM investment incentives.
Although the headline of a reduction of the overall tax rate may sound like it will be a good thing, the abolition of the reliefs could lead to more tax being paid by many.
The simple abolition of the RNRB on its own, even with the reduction in tax, could increase the IHT for a couple with a joint estate of £1,000,000 from nil to £35,000.
What should you do?
If you are considering making a lifetime gift, you may want to consider looking into this sooner rather than later, just in case the changes come into effect.
The decisions that we make about our finances have a direct consequence when it comes to tax. At Nash & Co we can sit down and talk to you about what it is that you would like to achieve, before we explore and make suggestions on how these objectives may be accomplished – in the most tax efficient manner.