10 March 2020
By Miranda Marshall, Director, Hayes + Storr.
The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) has published a report recommending the abolition of Inheritance Tax (IHT) in its current form, replacing it with an entirely different regime.
Various leading policy research organisations and expert tax bodies gave evidence to the Group during its deliberations. If adopted, its conclusions would replace the current array of IHT reliefs and exemptions, which contribute to frustration for families, as well as the perception that IHT is complex (most certainly the case) and unfair (I suppose it depends on your point of view).
The APPG proposals would tax both lifetime and death transfers of wealth (i.e. gifts at any time), at a low flat rate of 10%, compared with the 40% levied at present on estates above the £325,000 Nil Rate Band (NRB). The Report also recommends abolishing most reliefs, including agricultural and business property reliefs, and the capital gains tax (CGT) uplift on death. The current IHT gift allowances would be replaced with one annual tax free allowance per person of £30,000, over which immediate tax at 10% would be payable.
The proposals are that on estates of over £2million, the IHT rate would rise to 20%, which evidence suggests is the rate at which people begin to resort to tax-planning. The thinking is that by cutting tax rates, there would be less tax-avoidance but the UK would remain an attractive domicile for wealthy people. The NRB would be replaced by a ‘death allowance’, set at a similar rate to the current NRB, irrespective of previous lifetime giving.
The current IHT system of Potentially Exempt Transfers (PETs) allows large amounts of wealth to be passed tax-free by lifetime gifts, if the donor survives 7 years. The Report proposes the ending of PETs and instead there would be no tax on gifts up to £30,000 and 10% tax due immediately on gifts over £30,000. No further tax would be payable on death, and the idea is that this will incentivise families to pass wealth down the generations as people like certainty.
Let me make it clear that this is only an addition to the debate on reform to Inheritance Tax.
In the spirit of establishing intergenerational fairness in my own domestic sphere, I shall be introducing a policy of everyone putting their own plate in the dishwasher.
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