Inheritance Tax Review
Philip Hammond recently wrote to the Office of Tax Simplification (OTS) to review the particularly complex Inheritance Tax (IHT) legislation in order to make it “fit for purpose” and “make it simpler, fairer and better”. As a result, the future direction of IHT could change and so it has never been a better time to review your IHT position to ensure that you are making the most of the reliefs available.
The current IHT legislation includes some complex areas including business and agricultural property relief (BPR and APR) and trusts. These areas were originally aimed at protecting assets for entrepreneurs, and are important for farmers, estate owners and holiday park owners in protecting their family assets and businesses for the future. Unfortunately, as well as benefiting the entrepreneurs it has led to wealthy individuals making strategic investments in both land and businesses in order to avoid IHT.
The IHT legislation has remained largely unchanged with the exception of the new residence nil rate band introduced in 2017. The legislation states that tax of 40% is paid on the value of assets left on death above the Nil Rate Band (currently £325,000). The introduction of this means that up to an additional £175,000 tax free allowance will be available for individuals passing on their residence to a direct descendant. This would mean that it is possible, with planning, for a married couple’s estate of £1million to be tax free.
There is also a suggestion of replacing or combining APR and BPR reliefs. The potential changes will particularly affect land and business owners. In addition, they are calling for a simplification to the taxation of farmhouses which may have an unfavourable effect on many farming businesses.
The content of this article is for general information only and does not constitute tax advice. It should not be relied upon and action which could affect your business should not be taken without appropriate professional advice.
Rosie Bennett ACCA
Rosie joined Evolution ABS in 2012 and became ACCA qualified in July 2017. Rosie is now continuing her studies by sitting her Chartered Tax Exams.
When Rosie isn’t studying or working, she is very active within Young Farmers and is currently Devon Federation of Young Farmers Vice County Chairman - in August 2020 Rosie came runner up in the National Federation of Young Farmers Senior Member of the Year!
She also enjoys showing Holstein Dairy Cattle, helping her parents on their dairy farm and cycling.