11 July 2019 | Comment | Article by Sarah Cash TEP
Last week the Office for Tax Simplification (OTS) published its report on its recommendations for the simplification of the inheritance tax rules. Professional bodies such as the Society for Trust and Estate Practitioners (STEP) have welcomed the report as a step towards the inheritance tax regime being simplified, but do not feel that it goes far enough. There are, for instance, no recommendations in relation to the nil-rate band, the residence nil-rate band or the treatment of trusts.
One of the key areas which the OTS looked at was the area of lifetime gifting. Currently a person can make small gifts of £250 or less in value per recipient per year without incurring any inheritance tax consequences. In addition, the first £3,000 of gifts made in any tax year are not taxed and where this is unused in a year it can be carried forward, once only, to give an exemption of £6,000 in the following year.
The OTS stated that these current gift exemptions are ‘complex and create confusion’. They have suggested, therefore, that the annual gift exemption is replaced with an overall gift allowance but have not indicated how much this should be.
They have simply recommended that the government consider the level of the annual allowance (which has been £3,000 since the mid-1980s) and reconsider the level of the small gifts exemption.
If a person makes large gifts during their lifetime they are only taxed if they die within seven years of making them. The OTS has suggested that the seven year period be reduced to five years. This was on the basis of seven years being an awkward time frame as bank statements more than six years old can be ‘difficult and time consuming for executors to obtain’. It has been pointed out, however, that cutting it to five years may not make a huge difference as it’s still a long period of time.
There are also rules in relation to the rate of tax which is payable when a person dies within seven years and how far into that seven year time frame they die (known as taper relief). The OTS has recommended that this be abolished.
One of the other key areas which the OTS looked at was businesses and farms in relation to agricultural property relief (APR) and business property relief (BPR). They recommended that the government should consider as a package the application of some of the conditions for eligibility of these reliefs.
The report is certainly a step in the right direction in simplifying a tax which, for a lot of people (practitioners and taxpayers alike), can be complex and daunting. However, I believe an opportunity to review other areas at the same time has been missed.