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Last year my blog subject covered The Office of Tax Simplification’s (OTS) second report on simplifying inheritance tax.

I thought it was, therefore, a good time to reflect on what if anything has changed. The short answer as Paul Daniels would have said is ‘not a lot’. I won’t cover all the findings, but instead focus on a few areas impacting on financial planning.

Although the report did recommend replacing the annual gift exemption (£3,000 pa) and the exemption for gifts in consideration of marriage or civil partnership (£1,000) with an overall personal gifts allowance. Nothing has changed yet and it remains a partial solution for estate planning.

In addition, a recommendation was made to reform the exemption for normal expenditure out of income or replace it with a higher personal gift allowance. But with no change imminent, gifting out of surplus income remains a valuable, if little used, means of reducing a taxable estate.

It is still possible therefore to give away regular gifts out of income if it doesn’t affect the persons standard of living.

Since the nil rate band has been stubbornly stuck at £325,000 for more than a decade, anyone with an estate exceeding that figure could be liable for IHT. In response, the George Osborne as Chancellor introduced the Residence Nil Rate Band (RNRB), which allows homeowners an additional amount before they are subject to IHT. The residence nil-rate band is in addition to the standard nil-rate band. The additional amount will be phased in, starting at £100,000 and increasing by £25,000 a year until it reached £175,000 in April 2020. These are the maximum amounts and are subject to complex rules. However, the OTS concluded that as the RNRB is still relatively new, it should be given a chance before any recommendations on simplification are made.

Investments in qualifying AIM trading companies can attract 100 per cent Business Property Relief (BPR) from IHT provided that the investment is held for at least two years.

This was widely touted as area for change but did not materialise. A portfolio of AIM shares can be held within an ISA wrapper as well and remains a potential solution for individuals with existing investments and a higher tolerance for risk. These types of investment are not suitable for the majority of investors. Their value can fall sharply and be difficult to sell.

Although the OTS report was only advisory it has had little impact so far and events have rather preoccupied the Treasury and Government. Since last July’s report Brexit, a General Election and now Coronavirus have been prevalent. We have already had in 2020 several ‘mini budgets’ from a new Chancellor of the Exchequer. Whether the new Government will be forced to raise tax in the future remains to be seen.

If you wish to discuss any of the above further, contact Chris Wilson on 01329 282882 or by using our Contact Us page.

The Financial Conduct Authority does not regulate Inheritance Tax and Estate Planning.
The value of tax reliefs depends on your individual circumstances. Tax laws can change.