Published on: 13th December 2021

Inheritance Tax Reforms Rejected by the Treasury

The Office of Tax Simplification (OTS) issued their second report on Inheritance Tax (IHT) and their second report on capital gains tax in July 2019 and May 2021, respectively. These documents outlined ways in which the government could reform these tax codes if they did not adhere to the government’s policy intent.

On the Tax Administration and Maintenance Day (30 November 2021), the government responded to these reports issued by the OTS. This response came nearly two and a half years after the OTS completed their second IHT report. The delay in action from the government led many to believe that there would be major reform of the IHT system.

Whilst the government’s response outlined their measures to support their broad ten-year plan to modernise the tax administration system, the Treasury rejected nearly all of the IHT reform proposals. The government’s goal of modernisation focuses on greater accessibility and the implementation of technology rather than changing the tax codes themselves. Whilst the government has blamed COVID-19 on the lack of increases to tax allowances, the stagnancy has been a trend since before the pandemic. The current Nil-Rate Band (NRB) allowance, for example, has remained at £325,000 per person since 2009.

Although it had previously been announced that the NRB allowance would remain effectively frozen until at least April 2026, the OTS had recommended increasing the gifting allowances which have been stagnant for significantly longer than the NRB. The £3,000 annual gift exemption, for example, has remained at that value since 1981. With inflation, that amount would be over £13,000 today. Additionally, the wedding gift exemptions have remained the same since 1975 with the rules being confusing and disputed by professionals. The government, however, has stated that similarly to the lack of changes in the NRB, any potential changes to the gifting allowances must take into consideration the current economic landscape in which the country is positioned.

Only one of the eleven IHT recommendations from the OTS to the Treasury will be implemented; beginning on 1 January 2021, more non-tax liable estates will be excused from completing IHT forms. The government has accepted a further five recommendations for capital gains tax reform. Similarly to the single IHT policy, these reforms focus on administrative changes rather than substantive tax redesign as was expected.

If you would like to discuss estate planning to prepare for or help mitigate IHT liabilities, please consider contacting our client services team to book an appointment with one of our knowledgeable Consultants. Please call 01732 868190 or use our website by clicking here.

======================================

Our Covid-19 policy is now that if you wish to give instructions or require general information about our Wills, Lasting Powers of Attorney, or Trusts then we will carry out a telephone or Zoom appointment. However, if you wish to give instructions to one of our Consultants and you feel that you can only do this at a Face to Face meeting we are offering, at our Consultant’s discretion, a limited number of Face to Face appointments in most of the areas we normally cover (subject to Government advice). To see the areas we normally cover please click here. To arrange an appointment please telephone 01732 868190 or click here.

======================================

Back to all news