Inheritance Tax (IHT) reform is a topic that attracts on-going interest and January’s ‘Reform of inheritance tax’ report by the All-Party Parliamentary Group (APPG) for Inheritance & Intergenerational Fairness is the latest instalment to fuel speculation.

Although the APPG is an informal group of cross-party MPs, and there’s no indication that their recommendations will become government policy, we believe that the detail in their report and its pre-Budget timing warrant further attention.

Any reform results in winners and losers but with the APPG taking the stance that IHT is ‘unpopular and ripe for reform’, it’s no surprise that they recommend a complete overhaul of the current regime. If successful, the reforms would have a far-reaching impact and an increasing number of taxpayers would be subject to IHT.

The APPG makes two major recommendations

  • The Government replace the current IHT regime with a tax on lifetime and death transfers of wealth, with very few reliefs and a low flat rate, likely between 10% and 20%. The CGT uplift on death would also be removed,
  • HMRC are given greater powers to collect more meaningful data through compulsory electronic reporting of lifetime gifts over the current annual exemption of £3,000, even if they are not immediately subject to tax.

Other key recommendations at a glance

  • Lifetime gifts and transfers on death to be taxed at 10%, compared to the current rate of up to 40%. However, where an estate is worth over £2million on death, the IHT rate may be 20%
  • Annual gift allowance of £30,000 per annum to replace the current gift exemptions
  • Lifetime gifts, currently IHT free if survived by seven years, will be abolished. Where a gift to an individual or trust exceeds the annual gift allowance of £30,000, it will be taxed at 10%
  • An end to the IHT residence nil rate band, available where a main residence is left to a direct descendant on death
  • Removal of both Business Property Relief (BPR) and Agricultural Property Relief (APR), although the option to pay IHT via instalments over 10 years would become available
  • The nil-rate band would only be available on death, remaining at around the current level of £325,000
  • Inter-spouse transfers and charitable gifts would remain tax free
  • Removal of the Capital Gains Tax (CGT) uplift on death. Instead, all gifts would benefit from holdover relief to the donee, with any capital gain deferred until the asset is sold
  • Trusts may be subject to an annual charge, as opposed to the current system where a charge is payable every ten years
  • A residence based approach to replace the current rules regarding domicile and IHT on UK situs assets, alongside further changes to the taxation of trusts established by non-domiciled individuals.
Gunhild Dam
Gunhild Dam
Senior Tax Specialist

Gunhild provides specialist tax advice to wealthy individuals and their families, trusts, trustees and beneficiaries, business owners and entrepreneurs. She also supports non-UK resident and non-UK domiciled individuals.

To help you understand how the APPG’s recommendations might affect you, these examples compare the current and proposed IHT positions in various scenarios.

To help you understand how the APPG’s recommendations might affect you, these examples compare the current and proposed IHT positions in various scenarios.

We will, of course, keep you updated about any further developments to IHT reform. In the meantime, if you would find it useful to talk about your own specific circumstances, please get in touch with any of our IHT specialists.

Kate Naylor
Kate Naylor
Business Tax Partner

Kate spends a lot of time working with businesses and their owners on tax strategies and mitigation, which includes looking at the business and its structure, through to the owners personal tax situation and their longer term goals and plans.

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Fergus Beadle
Fergus Beadle
Private Clients Partner

Fergus has a wide range of experience in advising a mixed portfolio of clients ranging from individuals seeking personal tax and trusts advice to companies requiring accounts and corporate tax planning assistance.

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Becky Williams
Becky Williams
Senior Tax Manager

Becky provides tax compliance services and pro-active tax planning advice to her clients, also working on the preparation of trust accounts and delivering estate administration services to trusts, estates, their beneficiaries and trustees.

Paul Mitchell
Paul Mitchell
Senior Tax Manager

Paul provides guidance on all aspects of taxation and trust administration matters and is particularly experienced in advising on a range of capital taxes planning issues.

Gunhild Dam
Gunhild Dam
Senior Tax Specialist

Gunhild provides specialist tax advice to wealthy individuals and their families, trusts, trustees and beneficiaries, business owners and entrepreneurs. She also supports non-UK resident and non-UK domiciled individuals.

Steve Roberts
Steve Roberts
Senior Tax Specialist

Steve provides bespoke personal tax advice to wealthy individuals and their families, business owners and trustees, he is particularly experienced in advising the owners of law firms and dental practices.

Jo Hooson
Jo Hooson
Senior Tax Manager

Jo provides pro-active tax planning advice and works on the preparation of trust accounts and delivering estate administration services to trusts, estates, their beneficiaries and trustees, taking consideration of large family groups to ensure that all individuals’ needs are met.