Inheritance tax to be made simple!
About time to we hear you say, the Office of Tax Simplification (OTS) have undertaken a detailed review of Inheritance Tax (IHT), which I think we can all agree is a complicated tax. Their report is likely to lead to future changes to the rules. We will keep you posted as the changes may require you to amend your Will or to review your financial planning.
We have experienced many misconceptions about how the tax operates, particularly in connection with gifts. One of the proposed changes is to shorten the period for lifetime gifts to be exempt from 7 to 5 years. The OTS also recommended replacing the current £3,000 annual allowance, marriage allowances and the exemption for regular gifts out of income with a £25,000 personal allowance each year, so far so good….
No tax free CGT uplift on death
Although the Office of Tax Simplification were only tasked with simplifying inheritance tax, they also considered the interaction with Capital Gains Tax. Many asset transfers can have both CGT and IHT implications. Currently there is no CGT on assets transferred on death and the recipient inherits the asset at its market value.
The suggestion is that capital gains tax uplift on death distorts decision making relating to assets that benefit from an exemption from Inheritance Tax. Currently when an individual holds such an asset that has risen in value, and is considering transferring it during their life, they are often advised to retain it until death rather than giving it away during their lifetime, because of the tax benefits.
For example when a business is retained until death, any potential capital gains are wiped out and there is no Inheritance Tax to pay. This could then lead to an asset being retained and transferred to the next generation at a time that is right for the business.
We will monitor the progress of this proposed change as it is likely to have significant implications on family businesses and your succession planning.
If you are concerned about how these proposed changes may affect you, please get in touch or call 0161 249 5040