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Inheritance tax changes looming?
It seems likely that changes to inheritance tax (IHT) legislation will follow after the Office of Tax Simplification reports on the review ordered by the Chancellor, Philip Hammond.
Although the introduction of the transferable IHT nil rate band for married couples, which was brought in in 2009, and the more recent IHT residence nil rate band, introduced in 2017, have eased IHT planning concerns for many, the rules surrounding both reliefs are complex.
All too often, families end up paying more IHT following the death of both of their parents because they had assumed that the transferable nil rate band meant that there was no need to take professional advice on the first death, meaning that tax saving opportunities were lost. Similarly, the specific and complicated rules regarding the residence nil rate band mean that unmarried couples find themselves needing to make complex arrangements in their wills to ensure that their surviving partner is financially secure, whilst at the same time ensuring that the tax relief will ultimately be available for their children.
The combination of more complicated taxes and more people trying to save money on professional fees has also led to an estimated 35% increase in the number of disputes related to wills and probate heard in the High Court last year.
Interestingly though, despite having received a record breaking £5.2 billion from IHT for the 2017/18 tax year (an 8% rise on the previous year), HMRC has reported that it believes it has lost more than £5 billion in revenue because of “legal interpretation” of the issues around tax.
As well as simplifying the rules surrounding the transferable and residence nil rate bands, it is likely that the generous applicability of agricultural property relief for farmland and buildings, together with the long-standing rule whereby gifts made within the 7 years immediately preceding a person’s death are not liable to inheritance tax at that time, will also come under scrutiny.
Whilst a simplification of the rules would be welcomed by both public and professionals alike, reviews of tax legislation generally result in the tax payer paying more, so the need for careful planning and specialist advice is likely to remain as important as ever.
Watch this space….
In the meantime, if we can be any assistance with any queries on inheritance, or inheritance tax - please get in touch with a member of the team