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Potential Changes to Inheritance Tax

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Category: News
04 October 2019
It has been estimated that around only 4% of estates in the UK last year were subject to Inheritance Tax, due to the various tax allowances available when someone passes away.  If tax is due however, the bill can often be substantial as the tax is charged at 40% (or 36%) depending on the circumstances, over the relevant Nil Rate Band for the individual concerned.

Interestingly, the rules regarding Inheritance Tax could be in for an overhaul in years to come, due to recommendations made by the Office of Tax Simplification (OTS).  Whilst the Government have not made any formal responses as yet, it is worth being aware of some of the main proposals, when considering any future tax planning.

Potentially Exemption Transfers (PETs)

At the moment (and very simply put) if an individual makes a gift to their children as long as they survive the 7 years subsequent to the gift, the value of the gift falls out with their estate for Inheritance Tax purposes. The OTS have recommended that this period is reduced to 5 years and the availability of taper relief (which offers a tax rate reduction depending on how many years prior to death a gift was given) is removed, to make the rules more simplistic.

It is important to bear in mind that not all gifts are taxable (due to various different tax reliefs) but if the relevant gift is caught by the applicable rules, then if tax is payable, the recipient is responsible for the payment of the tax.  Interesting, the OTS have suggested that this is amended so that the estate bears the tax. 

Gifting Exemptions

At present, there are a number of general exemptions (over and above the Nil Rate Bands available) which an individual can benefit from and which will not be considered as a PET. These range from annual exemptions, to small capital gifts exemptions, to exemptions in contemplation of marriage and exemptions for regular gifts out of excess income. The OTS has recommended further simplification of the rules to remove these general exemptions and replace with one large single allowance annual exemption.

Interesting, there was no recommendation to increase the current Nil Rate Band at present.

Life Policies
Currently, payments from a life insurance policy on death are only exempt from Inheritance Tax if the same is written in Trust.  The OTS has suggested that the rules are changed so that all life insurance policies are exempt from Inheritance Tax- notwithstanding whether they are written into a Trust or not. 

It is important to bear in mind that the suggestions above are just that, and the Government will require to take some time to review the current law on Inheritance Tax to consider the pros and cons of amending the current rules.

Meantime, if you require any advice in relation to Inheritance Tax Planning on life, or death, please do not hesitate to contact one of our specialist lawyerswho would be more than happy to discuss the matter in more detail.
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Paris Steele has been providing a comprehensive legal service to the residents of East Lothian since 1926. We have offices in North Berwick and Dunbar and are proud to combine the highest quality of professional advice with first rate customer service. We understand the importance of getting to know you and our legal services will be individually tailored to meet your needs and resources. We are happy to act for both individuals and businesses. Our services are available to everyone and whilst our area of practice is limited to within Scotland we have clients from the whole of the UK and overseas.

We understand the importance of getting to know you and our legal services will be individually tailored to meet your needs and resources. We are happy to act for both individuals and businesses.