The inheritance tax rules are complicated. The OTS, or Office of Tax Simplification has spent just over a year and a half looking into the rules and have published two reports. The second report, which was published in July 2019, proposes many changes which may impact your estate planning:
Seven years reduced to five
Firstly, the OTS proposes that you will no longer have to live for seven years before a lifetime gift ceases to be subject to the inheritance tax. Instead, this figure has been cut down to five years. At the same time, the OTS proposes that taper relief should be abolished. In doing so, the amount of tax payable on lifetime gifts made more than three years before death will be reduced.
Tax business property relief
It has also been proposed that the rules of inheritance tax business property relief should be brought in line with those for capital gains tax. In doing so, this would result in fewer businesses qualifying for the relief.
Introducing a ‘personal gifts allowance’
The current annual exemption and the marriage partnership exemption should be replaced with a new single ‘personal gifts allowance’. The OTS also propose that the level of the small gift’s exemption should be reconsidered.
The rules for normal expenditure gifts should change or be replaced by a higher personal gifts allowance. The OTS believe that the existing rules are confusing and make it difficult to claim.
Term assurance policies
Pay-outs under term assurance policies should be completely free of inheritance tax.
With these new proposals, there would be clear winners and losers. To understand which category you would fall into, and to understand any actions that you should be taking, please talk to us. The value of your tax reliefs is dependent on your individual circumstances. Tax laws change and the Financial Conduct Authority does not regulate tax advice.
KLO Financial Services can support you with whatever you need. We will assess whether you are likely to be positively or negatively affected by these proposals and ensure you get the best result by adequately preparing for inheritance tax. Talk to one of our local independent financial advisers by calling your local office.