The Chancellor has written to the Office for Tax Simplification (OTS) requesting they carry out a review into the Inheritance Tax (IHT) regime. This follows HMRCs published report on IHT reliefs.
Background
Back in November 2017 HMRC published a report on ‘The influence of Inheritance Tax reliefs and exemptions on estate planning and inheritances’ and this will now be followed by an OTS review into IHT.
The report focussed on testators with agricultural or business assets, beneficiaries who have inherited such assets, and their advisors.
It found that most interviewees were familiar with IHT relief for gifts to spouses, some were familiar with the requirement that a donor survive a Potentially Exempt Transfer (PET) by seven years to avoid IHT.
Some were also familiar with the exemption for gifts to Charities.
Key goals for interviewees were to avoid breaking up the estate, ensure there was a succession of wealth, preserve businesses, and ensure that beneficiaries get as much of the estate as possible.
Only a few of the testators or beneficiaries intended to use, or had a Trust in place to deal with succession.
None of the testators interviewed were aware of Agricultural Property Relief (APR). By contrast agents reported that their clients were aware of APR, but that there was only a rudimentary understanding of the relief.
Similarly, most testators and beneficiaries with business assets were unaware of Business Property Relief (BPR) and none of them planned to rely on it, due to the type of asset or the value of their estates being below the nil rate band. Again, agents reported that their clients were generally aware of BPR.
The report did not discuss other planning areas such as Regular gifts out of income, Deeds of variation or Family investment companies.
Following on from this review of IHT reliefs, and the OTS’ interest in IHT, the Chancellor of the Exchequer has now requested that the OTS carries out a review of the IHT regime.
The focus is to be on the technical and administrative issues, include submitting returns, paying IHT and practical issues around estate planning and disclosure.
He has also asked the OTS to consider how the gift rules interact with the wide IHT system and whether the current IHT rules cause distortions in taxpayers’ decisions surrounding transfers, investments etc.
Links
IHT 10% discount on charitable bequests
IHT Agricultural Property Relief
Trusts & Estates: Ten-year charge reporting requirements
IHT: estate planning checklist
Normal expenditure out of income
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