Inheritance Tax Relief in the spotlight


Simon Cole, Partner


We highlighted in the last Financial Planning Matters that the Office of Tax Simplification (OTS) were planning a review of the whole operation of Inheritance Tax (IHT) Reliefs.


This review has not yet been started but the final report from the OTS made very interesting reading. There has been speculation over many years for potential changes to IHT and this review may be the catalyst for this.


They state in the report that in 2009 only 2% of estates paid IHT, the lowest number since records began. However the total tax from these estates is estimated at £2.4 billion, or an average of £200,000 of tax per estate.


It was suggested that it would be sensible to increase some of the smaller reliefs, in particular the current annual exemption of £3,000 and gifts on the occasion of marriage neither of which have been increased since at least 1981. Certainly if the annual exemption had been increased by inflation it would now be almost £6,000.


The big question has to be will these small appeasements lead to scathing cuts elsewhere? The report states


“On the basis of the low number of estates caught by IHT and the useful, but relatively low revenues (after reliefs) that it raises, we consider that a more appropriate approach may be to review the whole of IHT rather than to consider individual IHT reliefs.”


It has long been argued by the Conservatives that a higher personal exemption could be applied (above the current allowance of £325,000). This increase was postponed when the Coalition Government was formed, in the midst of a financial crisis. However a comprehensive review could incorporate this change.


The books have to be balanced and it is thought that a change to the personal allowance may lead to additional IHT charges elsewhere.


Other main reliefs include Business Property Relief (BPR) and Agricultural Property Relief (APR). Many of you in Farming or with a small business will know the huge benefit of these reliefs, for some saving millions of pounds of IHT. Whilst it would be deeply unpopular to remove these reliefs completely it would be a possibility for the relief to be reduced.


Of course we cannot tell if such big changes will happen but there are ways to lock in these reliefs now. Better to have considered your personal options ahead of the review conclusions. If you want to discuss your individual circumstances please call your usual Old Mill contact.


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