Office of Tax Simplification - Inheritance Tax and Capital Gains Tax Reviews

Inheritance Tax

In July 2019 the Office of Tax Simplification (OTS) made recommendations to the government on how to simplify the design of Inheritance Tax, which included:

  • Reduce the ‘7 year clock’ to 5 years such that gifts made to individuals more than 5 years before death are exempt from Inheritance Tax.
  • Where Inheritance Tax relief applies to assets inherited on death, the base cost of the assets should be the deceased’s original base cost, rather than the market value on death. The OTS felt that uplifting the base cost on death creates a Capital Gains Tax advantage and may therefore be deterring businesses and land owners from passing on their assets during their lifetime.
  • Align the Inheritance Tax treatment of furnished holiday lets with that of Income Tax and Capital Gains Tax such that Business Property Relief could apply to relieve an Inheritance Tax liability.
  • Increase the level of trading activity required by a business for it to be eligible for Business Property Relief from 51% to 80%.

    • In January 2022 the All-Party Parliamentary Group went further and recommended that the current Inheritance Tax regime is replaced with a more straightforward tax on lifetime and death transfers of wealth with very few reliefs and a low flat rate of Inheritance Tax, perhaps between 10% and 20%. They also recommend introducing compulsory reporting of lifetime gifts of over £3,000 even if no tax charge arises.

    HM Treasury has recently responded to these recommendations to confirm that they have decided not to proceed with any changes at this stage. This can be considered as good news for those inheriting farms and businesses on death and for those with businesses which have a significant amount of investment activity.

    Although it is a shame that the 7 year clock is unlikely to be reduced for the foreseeable future and that furnished holiday lets are to continue to be unlikely to benefit from Business Property Relief. There are however scenarios where Business Property Relief can apply to furnished holiday lets as part of a wider overall trading business. If you would like to discuss Inheritance Tax with us, then please do not hesitate to speak to one of our advisors.

    Victoria Paley ACA CTA

    Senior Tax Manager

    Victoria.Paley@evolutionabs.co.uk

    Written by Victoria Paley ACA CTA
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    Director

    Victoria Paley ACA CTA

    Senior Tax Manager

    Victoria joined the practice in July 2019 having worked in accountancy and tax in the rural sector since 2010. As a Chartered Accountant and Chartered Tax Adviser Victoria spends most of her time advising family farming businesses on Capital Gains Tax and Inheritance Tax matters primarily in relation to succession planning and capital transactions.

    Outside of work Victoria spends most of her time running around after her two young children and riding her horse. Having always loved to travel, Victoria hopes to resume exploring the world with her family once the children are a little older!

    T: 01823 462908

    E: Victoria.Paley@evolutionabs.co.uk



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