The UK Office of Tax Simplification (OTS) has currently turned its attention to inheritance tax (IHT). On 5 July 2019 the second part of their report was published focusing on lifetime gifts, business property relief (BPR) and agricultural property relief (APR).
The key recommendations include:
- Replacing the annual gift allowance and gifts in anticipation of marriage with an overall gift allowance, including reviewing amount of the allowance and the small gifts exemption;
- A reform of the exemption for gifts out of surplus income;
- For lifetime gifts, reducing the period before death that gifts are removed from an individual’s estate, from 7 years to 5 years;
- On death, where an exemption or relief from IHT exists removing the automatic uplift of the value of the asset for capital gains tax (CGT) purposes.
- For furnished holiday lets bringing the criteria to qualify as a trading business for BPR in line with the criteria for CGT and income tax;
- Reviewing the treatment of Limited Liability Partnerships for BPR; and
- Reviewing the treatment of farmhouses for APR in cases where the farmer has to leave the farmhouse prior to death, such as to go into care.
STEP (the Society of Trust and Estate Practitioners) has already commented welcoming the simplification review but expressing disappointment that the nil rate band, residence nil rate band or trusts have not been included.
There is no doubt that the current IHT regime is complex and needs simplifying. If all of the above areas are overhauled this would result in a significant change to IHT as we know and consequently estate and tax planning recommendations. Therefore the review is welcome, but we will all be paying close attention to the final results.
To read the second report please click here.