The Office of Tax Simplification (OTS) published its long-awaited second report on inheritance tax (IHT) in July with a range of useful proposals.
Currently, you can give £3000 without incurring inheritance tax, and the maximum amount you can give someone under the wedding gifts exemption is £5000. The OTS are suggesting that the annual IHT exemption and the wedding gifts exemption are combined into a single ‘personal gift allowance’. The OTS didn’t suggest how much this would be, but they did note that the annual allowance would be £11,900 in 2019/20, had it been inflation proofed.
At present, you need to live a further seven years for any lifetime gifts not to form part of your estate on death. In some instances, gifts made up to 14 years before death could affect the level of tax payable. The OTS suggest that only gifts made within five years of death should be relevant. That sounds like good news, but there is a catch: the OTS wants to scrap taper relief, which currently reduces the tax payable – if any – on gifts made more than three years but less than seven years before death.
While the report discusses the criticisms received about the complexities of the relatively recent residence nil rate band (RNRB), the OTS says it is too early to propose any changes. However, it does quote an HMRC estimate that for the same tax cost, scrapping the current £150,000 RNRB would only allow the main nil rate band to be increased by £51,000.
The OTS report will now be considered by the new Chancellor, Sajid Javid. The changes he puts through will in part depend upon parliamentary arithmetic and for how long the government survives. In the event of a change of government, the changes to IHT could be quite different. When thinking about estate planning, it is important to be aware of any changes that are introduced.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.