While the Treasury benefitted from record inheritance tax (IHT) receipts of £5.2bn in 2018, new figures show that many people are unaware of how the IHT system works or how it could help them pass their wealth to their beneficiaries.
A survey out in April from Quilter showed that only 37% of those asked were aware of inheritance tax rules. Under half of those surveyed knew about basic IHT rules around gifting or the nil rate band. At the same time, however, 60% thought the rules likely to be important for how they could pass wealth on, highlighting the disconnect between the information available and understanding the practical implications for individuals and their families.
The Office of Tax Simplification (OTS) is due to deliver the second part of its review of IHT regulations during this spring, following an initial report in January that looked largely at administrative issues. The review is aimed at simplifying how IHT is implemented, with the second of the reviews expected to focus on specific areas of change.
With additional complications like the residence nil rate band still focusing on the nuclear family, the IHT regime appears out of step with modern families and concerns about inter-generational wealth. A House of Lords committee on intergenerational fairness has already reported across a range of issues from housing to pension credits and estate tax.
Among a raft of recommendations, they called IHT “capricious and not fit for purpose”. Going back to fundamentals, the Lords report questions why and how assets should be taxed at death or on transfer to the next generation. The report suggested options such as a capital receipts tax payable on income received by beneficiaries or exempting certain assets from IHT if earmarked for first home purchase by a family member.
Whether any of these ideas come to fruition, and whatever the awaited OTS report recommends, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family. The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.
Our specialist legal team are on hand to speak to you about IHT and estate planning. Drop us a line on 0114 266 4432 or [email protected] and let us know if we can help.