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ICAEW comments on inheritance tax proposals

Friday 5 July 2019. Commenting on the recommendations contained in the Inheritance Tax Review second report published today by the Office of Tax Simplification (OTS), Sue Moore, ICAEW Technical Manager said:

“The inheritance tax system is a complex area for professional accountants to navigate, let alone grieving families, and the piecemeal additions to the original 1980s legislation make it more confusing.

“The OTS has come up with some sensible proposals to simplify the system, although some are controversial. The recommendation to combine the various gift allowances into one personal allowance is positive as many people are baffled by the various exemptions currently in place. More contentious is the suggestion that the normal expenditure out of income rules be abolished and included within a higher personal gift allowance.

“Reducing the seven year survival period for gifts to five years is a very practical solution to the problem of obtaining bank statements that are more than six years old. Taper relief is much misunderstood: the taper applies to the tax payable but most people think it applies to the value of the gift. As most lifetime giving is below the nil rate band, the taper relief doesn’t kick-in very often so abolishing this relief - combined with a reduction in the survival period to five years - would probably mean more people would win than lose.

“The recommendation to remove the capital gains tax (CGT) free uplift on death where an asset qualifies for relief from inheritance tax (IHT) could, if adopted, encourage earlier gifting of businesses which may be beneficial. Many business owners defer gifting their business to their children for fear of losing out on the CGT free uplift on death. However, to exclude the CGT uplift when the spouse exemption is claimed seems unjust as the taxman will get his slice of the IHT on the death of the surviving spouse.

“There are some areas that require further thinking: moving the liability for tax on lifetime gifts payable after death from the gift recipient to the estate could be challenging if the estate is left to a different beneficiary.

“The UK Government now collects over £5bn from IHT, up from around £0.5bn in 1980, so it is an increasingly important tax affecting more and more people. However only around 5% of deaths result in IHT being paid, so more people are worried about IHT than actually have to pay it.”


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