You may have recently heard about proposed changes to Inheritance Tax from the main political parties. In this article, we look at some of the proposals and give our view on them.
Although it wouldn’t really be fair to suggest that there is any popular form of taxation, Inheritance Tax is one of the types most disliked by the British public. With all its complexities that often come into effect at the worst time both emotionally and financially, people often try to reduce this burden on their loved ones.
Despite all of the current turmoil within the UK Government, estate planning and the resulting Inheritance Tax appear to be hot on the political agenda, with both of the two major political parties recently commissioning their own reports into the system.
The Labour Party’s Land for the Many report recommends replacing Inheritance Tax with a Lifetime Gifts Tax. At the core of this proposal, they suggest that the liability should fall on the recipient of the gift and not the donor. Each recipient could receive up to £125,000 either during their lifetime or on death, tax-free. Anything received over this amount would be taxed at the recipient’s usual Income Tax rate.
The Office of Tax Simplification’s (OTS) report, commissioned by Chancellor Philip Hammond suggests scrapping the ‘seven year rule’, which has often been seen as the cornerstone of estate planning, in favour of a reduced five-year term, removing taper relief and making significant changes to the existing gift allowances.
It also highlights the potential benefits of taking financial advice:
‘The OTS’s discussions with stakeholders identified an uneven playing field in the Inheritance Tax treatment of distinct types of financial products.
In practice, this can lead to a difference in tax paid between those who have taken advice and the large number of people who have not taken financial advice.’
Tilney has a specialist technical estate planning team that works alongside our financial planners, headed up by Ian Dyall, who was recently given the Outstanding Contribution to Estate Planning award at the 2019 City of London Wealth Management Awards.
Their view on both reports can be summarised as follows:
It is worth remembering these proposals are not definitive changes – they are recommendations which may or may not be adopted, depending upon the political landscape going forward. Overall, we view many of the proposals as positive and would welcome any simplification. The potential timeframes involved would be beneficial as, if you act now, you will have more time to make the most of the changes and your allowances.
If you want to find out more about how we could help you with estate planning and Inheritance Tax, please download our new guides.
Alternatively, if you want to speak to someone directly, please book an initial consultation with our financial planners. They will be able to answer any questions you have and advise you on the best way to proceed.
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This article is based on our understanding of proposed tax legislation. Whether any tax will be payable, at what level it is charged and whether you qualify for tax relief will depend upon individual circumstances. Our opinions may be subject to change.