A group of MPs have called for a radical overhaul of the current inheritance tax system. In a report published earlier this week, the All Party Parliamentary Group on Inheritance Tax and Intergenerational Fairness urged the government to change the current system which it claimed was “complex, ineffective, riddled with anomalies, distortionary and unfair”.
The report can be found here.
One recommendation is a flat-rate 10% “gift tax” on all gifts made in excess of £30,000 annually, and on death. The rate rising to 20% for estates valued in excess of £2m.
Another is that lifetime gifts would have no impact for inheritance tax purposes on death, and thus the current 7 year rule would be abolished.
On death, the £325k nil-rate band would stay, as would the spousal exemption, but the residence nil-rate band would be abolished.
Controversially, reliefs such as business property relief and agricultural property relief would be abolished.
The report also touches on the interaction of capital gains tax and inheritance tax, recommending that the capital gains base cost uplift on death is abolished and that all transfers (whether on death or in lifetime) benefit from a form of holdover relief (where the recipient effectively inherits the donor’s base cost so that the gain is deferred).
These, coupled with those of the Office for Tax Simplification (see here for my previous blog on these recommendations) means we could see interesting times ahead for inheritance tax!
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