[vc_row][vc_column][vc_column_text]If there is a UK tax that needed major overhaul, then Inheritance Tax (IHT) must be a prime candidate. Many families hear that the Chancellor, Philip Hammond, has written to the Office of Tax Simplification (OTS) asking them to put forward proposals for the reform of IHT “to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible”.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column width=”1/2″][vc_column_text]His letter asked the OTS to look at the technical and administrative issues associated with IHT, the process of submitting returns and paying the tax. Mr Hammond also called for a review of the issues surrounding estate planning, and whether the current framework causes ‘distortions’ to taxpayers’ decisions regarding investments and transfers.[/vc_column_text][/vc_column][vc_column width=”1/2″][vc_single_image image=”1638″ img_size=”full” add_caption=”yes”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
Increasing property prices gives rise to higher IHT
In the 2016-17 tax year, HMRC raised a hefty £4.84bn in IHT, brought about largely by rising property prices that are seeing more and more families drawn inexorably into a tax net, despite doing nothing more than owning their own home.
IHT has certainly made several aspects of financial planning more complex. With the Bank of Mum and Dad currently a major source of funding for house purchases for first-time buyers, the operation of the seven-year-rule is becoming a key issue that needs careful consideration in effective tax planning. The annual tax-exempt gift allowance of just £3,000 arguably needs a major overhaul, as does the out of date amount of £5,000 that can be given away to offspring on their marriage.
Since the advent of pension freedoms in 2015, it has become more tax-efficient to pass on a pension than an ISA, meaning that some people have found themselves viewing their retirement savings in a whole new light.
More controversial still was the recent introduction of the Residence Nil Rate Band (RNRB) which is both complex in its application and divisive in its outcomes. Former MP and now TV personality, Ann Widdecombe, was particularly incensed that under RNRB rules she wouldn’t be able to benefit by leaving her home to her niece, as the regulation only covered direct descendants, which she doesn’t have.
Raising the threshold across the board
Given the individual threshold for IHT has remained at £325,000 since 2009, many would argue that, rather than adding another layer of complication such as the RNRB, the simplest and fairest thing to have done would have been to increase correlation with the rise in house prices. Hopefully, that’s one of the many thoughts currently crossing the minds of the team at the OTS.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]By Ivan Lyons, Director, Investment Solutions, Worthing
Contact Investment Solutions: Grafton House, 26 Grafton Road, Worthing, BN11 1QT. 01903 214640 or send an email to Ivan at: email@example.com or visit www.investment-solutions.co.uk