This guest editorial piece from Stevens & Bolton was written by partners Stuart Skeffington and Rosie Todd and covers proposed changes to inheritance tax.
Inheritance Tax (“IHT”) is a notoriously unpopular tax – it is overly complicated and perceived to be unfair. The current system which includes the spouse exemption, wiping out capital gains on death and no IHT on lifetime gifts (provided the donor lives seven years) can lead to very capricious results depending upon how the order of deaths unfolds. The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness report (published at the end of January 2020) sets out proposals which would change all of that.
Overview of the recommendations
The report proposes a flat rate of tax at 10% on both lifetime gifts and death (although the death rate for estates valued at over £2m would be 20%). It suggests removing all reliefs (other than the spouse and charity exemptions) and replacing these with an annual allowance of £30,000. On death, estates would also have the benefit of something akin to the current nil rate band - i.e. a tax free amount of £325,000 per individual.
All gifts over £30,000 would trigger an immediate 10% tax charge