Inheritance tax could be due a major overhaul, with a new report recommending sweeping changes to gifting rules, life insurance policies and even who pays the bill.
After a request from the Chancellor of the Exchequer, the Office of Tax Simplification (OTS) conducted an extensive review into inheritance tax. Its new reports sets out clear recommendations for reforming the rules, which the government must now respond to.
You won’t necessarily have to pay inheritance tax, as the first £325,000 of an estate is tax-free. And if your home passes to your child or grandchild, the estate can be worth up to £475,000 in 2019-20 before tax is payable. Indeed, last year just 24,500 estates were landed with a tax bill, accounting for around 4% of all deaths in the UK. Yet while the number of people affected is small, the bills can be enormous, with a tax charge of 40%.
Whether you’re planning your legacy, or dealing with an inheritance, it’s vital to know how the rules work. Here’s the recommendations the OTS has made:
1. Shortening the time limit for taxable gifts
2. Changing who pays inheritance tax on gifts
3. Reforming IHT exemptions to gifts
4. Exempt all life insurance policies from inheritance tax
5. Remove the capital gains tax uplift
6. Review treatment of businesses and farms
The OTS report only contains a list of recommendations, so the current rules haven’t changed but do talk to your financial adviser.