The Chancellor has requested The Office of Tax Simplification reviews the current inheritance tax rules, ordering a thorough review to ensure that the “system is fit for purpose”.
Updating the Inheritance Tax threshold
The full scope of this investigation will emerge over time, but one thing which I hope this review will cover is the amount that a person can give each year without being liable for payment of inheritance tax. The limits for this were set in 1981 and have never been increased, so not an accurate reflection of almost four decades of social and economic change.
The annual allowance enables a person to give away £3,000 without paying inheritance tax. While not an inconsequential sum, to put that into context, in 1981 £3,000 was enough to put a deposit on a house –in the housing market of 2018, we clearly cannot make the same statement.
Simplification of the Nil Rate Band
The Chancellor has acknowledged that the inheritance tax regime is “particularly complex”, and this is something of an understatement, especially after the introduction of the additional “Residence Nil Rate Band” which applies from April 2017. In our experience, this new allowance – the threshold at which an estate is liable for inheritance tax – is ridiculously complicated.
There are so many exemptions and caveats to the relief that many people are simply not aware of – in fact many of my clients are shocked when I’ve discussed this with them, as they had wrongly assumed their estate would benefit from the relief whereas in fact they can’t. Clarification here, would be a great step forward.
Effective estate planning
Inheritance tax is being paid by more and more estates – £5.3 billion was collected last year alone. A combination of rising house values, and the fact that the inheritance tax free threshold has not increased since 2009 have contributed to significant increase in Government revenue.
Effective planning is essential and can help reduce the inheritance tax paid by an estate. It is important that everyone regularly reviews their position to ensure changes in the system and appropriate legislation are properly taken into account.
Julie Jewers is a Solicitor ranked in leading industry directed as a notable practitioner in the field of inheritance and taxation planning. To discuss how she and Berwins’ expert Life team can support you plan for the future contact Berwins today.