Simplifying IHT – mission impossible?
Some 18 months ago the Chancellor as was, Philip Hammond, asked the Office of Tax Simplification to review the Inheritance Tax regime and suggest ways to simplify it. Earlier hopes that he’d completely abolish the unpopular levy on inherited wealth soon faded. It was too much to expect that a tax set to raise £5.3bn for the Exchequer in 2019-20 (OBR estimate) would be ditched.
A couple of months ago, as some readers of our Private Wealth Guide and blog may know, the OTS published its second report under the review. It ran to 107 pages and included 11 recommendations ‘to deliver a more coherent and understandable structure’ for IHT. The cynics were right; a lengthy review and report by leading experts in simplification wouldn’t be likely to present a simple solution.
The report was quickly kicked into touch, as no sooner had it landed on Mr Hammond’s desk than he resigned and made way for Sajid Javid. The new Chancellor has other priorities likely to outweigh a project launched by his predecessor, so IHT revisions may be stuck in the long grass for a while. That could change if we see an early general election and politicians of a different hue take charge.
History has ensured that IHT is complicated. Its past as death duty and capital transfer tax (among other guises) has brought change at every turn. Recent occupants of No. 11 have kept to that tradition, tinkering with IHT rules, rates and thresholds. The work of Mr Hammond’s predecessor George Osborne has yet to be concluded; his ‘main residence nil-rate band’ takes full effect next April.
Clients of our firm’s Wills, Trusts & Probate team may have had reason to welcome Mr Osborne’s MRNRB, as it will give many couples a combined £1m IHT-free allowance, but the strings attached mean that not all may benefit; some must be content with a £650k maximum. As for IHT rates, above the applicable threshold 40% is normally payable, but there are 20% and 36% rates in certain cases.
With an IHT regime that may be tightened, loosened or reinvented, how do you plan? Working with existing rules while remaining alert to the risk of change is a valid strategy. For some valuable suggestions on how planning can, with expert guidance, help to reduce your estate’s IHT liability, see our previous blog on this complex subject.
