Inheritance tax (IHT) reforms that would have simplified probate for millions of bereaved families have been ruled out by the Treasury.
It comes after plans published last month to create “a modern, simple and effective tax system” excluded IHT recommendations set out by the Office for Tax Simplification (OTS) in 2019.
The documents commit to a range of new tax reliefs and reforms, including an update on reforms to Small Brewers Relief, a review of business rates, and changes to Research and Development (R&D) tax relief.
But contrary to expectations, the plans did not include the widely anticipated recommendations on IHT set out by the OTS in July 2019.
The report – known as the OTS Inheritance Tax review: Simplifying the design of the tax – outlined how lifetime gift exemptions and the scope of inheritance tax reliefs could be simplified to support bereaved families.
Under the proposed changes, the seven-year rule for gifts would be shortened to five years and the tapered rate of IHT would be abolished to “reduce the workload on executors”.
The multiplicity of lifetime gift exemptions, meanwhile, would be replaced by a single personal gift allowance. There are currently exemptions for the first £3,000 given away each year, for individual gifts of up to £250, gifts to someone getting married or entering a civil partnership, and regular gifts out of a person’s disposable income.
Commenting on the recommendations in 2019, Bill Dodwell, OTS Tax Director, said: “The taxation of lifetime gifts is widely misunderstood and administratively burdensome.
“Where there is Inheritance Tax to pay on lifetime gifts, the OTS recommends the government explores options for simplifying and clarifying the rules on who is liable to pay this tax, and how the £325,000 threshold is allocated between different recipients.”
Of the 11 recommendations set out in the report, just one will be implemented: from 01 January 2022, nine in 10 non-taxpaying estates will no longer have to fill out IHT forms for deaths when probate or confirmation is required.
For help and advice with related matters, please get in touch with our estate planning and inheritance tax team today.