In order to make things far easier for people, the Office
of Tax Simplification (OTS) has recommended that there be a huge reform of
inheritance tax. However, they are yet to suggest a way to handle the complex
residential nil rate tax band.
Inheritance tax (IHT) is primarily applicable on death but can also apply to gifts made to individuals within seven years of death and for lifetime gifts, excluding individuals, charities, and qualifying political parties.
There was an attempt to increase the threshold in 2015, with the coalition government introducing a married couple’s allowance that lifted the threshold to £650,000. A downside to this is that it still leaves thousands facing a single person rate of £325,000, a figure that has not increased since the indexation of IHT rates was removed more than 10 years ago.
There is an additional advantage for married couples and civil partners with a residence nil-rate band, entitling them to an additional £150,000 each of tax-free property-based inheritance. This will also rise to £175,000 from 6 April 2020, while the annual allowance for lifetime gifts has not risen since the 1980s and is based on an outdated principle of gifting outside of tax.
There are 11 recommendations in the OTS report that aim to deliver a ‘more coherent and understandable structure to the tax’, as it is commonly misunderstood by taxpayers. It does note, however, that only an estimated 25,000 estates (5% of deaths) are liable for inheritance tax each year.
The focus of the reform is on the taxation of lifetime
gifts, such as where individual liability lies. This makes the exemption
process simpler and guarantees they are focused on the policy goals of raising
Under current rules, if people give away gifts then they are required to pay IHT if the total given is in excess of £325,000 and they die within seven years. The OTS wishes to reduce this to five years.
From the OTS’s consultation exercise, it has been
discovered that IHT is misunderstood, counter-intuitive, requires substantial
record keeping, creates distortions, or even with the application of the law it
is just unclear.
Based on the Lifetime Giving report by the IFS and Natcen, there were only 12% of people who made gifts in 2017-18. This was split primarily with older and more affluent people giving the most at a median of £4,000 for those over60, compared to £3,500 for those under 60.
In total, there were £5.2bn in IHT receipts from 2017-18. This was up 8% (£388m) from 2016-17, as wealthier estates contributed almost half of the revenue. During that year there were only 4.2% of all UK deaths subject to IHT.
This consultation saw fantastic feedback, with almost 3,000 responses to an online survey, 500 emails from individuals, and more than 100 written responses from experts. Typically, a tax consultation is used to seeing a collective 30-40 responses.
HMRC Increase Tax Investigations
There has been a rise in legal cases between HMRC and taxpayers, due to HMRC collecting further data from banks and foreign tax authorities in order to send cases to tribunals. This has led to a rise of 43% over 2 years in First Tier Tax (FTT) tribunal cases. There […]
HMRC Seeks to be Preferential Creditor in Insolvencies
Recently announced by the government, there will be a public consultation on plans to make HMRC a secondary preferential creditor for certain tax debts paid by employees and customers on the insolvency of a business. HMRC was once a preferential creditor for certain taxes before 2003, however once the Enterprise […]
Research and Development (R&D) tax relief claims are far higher in recent years than ever before, with an astounding £21.4bn in tax relief claimed overall as confirmed in a report released by HMRC on 27 September 2018. Between 2000-2017, there have been over 240,000 claims made across the UK, with […]
What is Offshore Income Income is considered ‘offshore income’ if it comes from a territory outside the United Kingdom. It includes: – interest from overseas bank or building society accounts – dividends and interest from overseas companies – rent from overseas properties – wages, benefits, or royalties earned outside the […]
Created in 1994, The Enterprise Investment Scheme (EIS) is a group of tax reliefs that succeeded the Business Expansion Scheme. It was created as an incentive to have investments in small unquoted companies carrying on a qualifying trade in the UK. The scheme is extremely popular, with £14.2 billion invested […]
Overview The Seed Enterprise Investment Scheme (SEIS) is designed to aid small, early-stage companies to raise equity finance by offering tax reliefs to investors that purchase new share in the companies. It works with the existing Enterprise Investment Scheme (EIS) that offers tax reliefs to investors in higher-risk small companies. […]