Inheritance Tax (IHT) and the Office of Tax Simplification (OTS) calls for overhaul The ‘strangely named’ Office of Tax Simplification (OTS), an independent advisory body, has called for a radical overhaul of death duties suffered by the Estate in the UK, including cutting the seven year potentially exempt transfer (PETs) exemption governing gift giving down to five years. The document produced is 106 pages in length and detail! Simplification in action! The UK’s tax system is complex generally, where IHT is payable on assets gathered, where tax has already been paid on income and gains …. It is therefore essential to ‘plan’ effectively, depending on your personal views, needs and motivations…. “If ‘simplification’ was the name of the game for this report, then that goal is a welcome goal, further tinkering to the system may do the opposite!” We are here to help… as Independent Financial Advisers who provide consultancy services to clients and investors should they require professional advice. Simply get in touch if you wish to engage in professional services at the best price. BackgroundThe proposal would enable those able to give away large chunks of their assets to substantially reduce their estate’s inheritance tax (IHT). About 5% of estates are liable for IHT, charged at 40% above an individual’s £325,000 threshold. Currently, transfers of assets to younger relatives made seven years or more before death are not usually taxed. So, anyone who has a buy-to-let property, for example, can put it in the name of one of their children, if they do not need the income from it to support their retirement, in enough time for the seven-year exemption to apply. “Simplification was the name of the game for this report and that is a welcome goal. However, further tinkering to the system may do just the opposite” OTS said IHT was overly complex and “uniquely unpopular” as part of its recommendations for changes to the regime, including an overhaul of outdated “gifting rules”. The report was commissioned by chancellor Philip Hammond, in 2018 in an attempt to address issues of intergenerational unfairness. “Simplification was the name of the game for this report and that is a welcome goal. However, further tinkering to the system may do just the opposite. Before the government jump feet first into making these changes, they need to step back and reflect on the purpose and vision of inheritance tax,” Rachael Griffin, tax and financial planning expert at Quilter, said in a statement. Reforming the rules around lifetime gifting are sensible, but instead it recommends shifting the timespan from seven to five years. On the face of it this appears beneficial. The OTS identified that gifts made beyond five years pay little IHT due to the effect of taper relief but are adversely impacted because the gifts reduce the nil rate band available and so in general increase the IHT paid by estates. One of the most complicated areas of the gifting policy is: what happens when someone who has been given a gift, that was a potentially exempt, now has IHT to pay?” she added. Neil Jones, wealth and tax specialist, Canada Life, said: “The rules around gifting are ripe for review. One recommendation is to cut the 7 year rule down to 5, so if you gift after five years it can effectively be done outside of IHT. This would obviously help more clients. It’s also proposed to remove the ’14-year rule’ entirely, meaning there would be no need to take in to account gifts made outside of the existing 7-year period.” The report also advocated scrapping the taper relief and recommended that the existing IHT free gift allowances be replaced with one allowance per person. Currently, individuals can give away £3,000 a year without paying IHT and unlimited gifts of under £250 to other people. Parents can give £5,000 towards the cost of a child’s wedding and grandparents, £2,500, IHT free. “The OTS rightly acknowledges that the seven-year taper rule is hideously complex and can cause people to be landed with an unexpected inheritance tax bill years after they were gifted money. “However, the suggestion of reducing the seven years down to five and scrapping taper relief entirely looks like a bald tax grab and revenue-raising move. Instead the taper could be simplified into a two-step process for example, or if it’s scrapped entirely then the period should be shorter than five years,” Laura Suter, personal finance analyst at AJ Bell, said. This March, HMRC reported a staggering 44.4% increase in Inheritance Tax (IHT) receipts to £5.4bn, compared to the previous month. That’s up £200m on the previous year and £600m more than the £4.8bn collected in the year ending April 2017. This represents a new high in terms of annual revenue for the government and as a proportion of the GDP. The OTS received overwhelmingly negative feedback from the general public. Bereaved families often found that they could not obtain probate without submitting IHT forms — which can be more than 100 pages in length — even when no tax was due. Click the link below to read an article written by Rachael Griffin, Head of Trusts and Technical Solutions at Quilter – many will soon understand that Old Mutual Wealth will be re-branding to Quilter Wealth: If you would like to read the 106 page report from the OTS simply click on the link below: Assuring you that our specialist Independent Financial Advice services are accessible and at the best price/best value/best quality available for your consultancy and transactional needs. ££££ Warmest Regards. Richard and the Best Price FS Team |