The Office of Tax simplification (OTS) published its second report on inheritance tax (IHT) entitled ‘Simplifying the design of Inheritance Tax’ on 5 July 2019. This focuses on technical issues arising from how IHT works (the first report covered administrative aspects).
Broadly the recommendations would represent a welcome simplification in certain areas but, perhaps inevitably, some of this comes from removing, or restricting, exemptions and reliefs. The headline grabbing suggestions to increase the annual gift exemption and reduce the period someone needs to survive a gift from 7 years to 5 years, come with the inevitable trade offs such as the removal of other gift exemptions, and the abolition of the relief which begins reducing any tax charge once someone making a gift survives for three years.
For business owners, some recommendations are not positive:
- removing the capital gains uplift on death where an IHT relief or exemption applies so, on a later disposal, gains from the original acquisition would be chargeable to tax;
- lowering the threshold of a business which can be non-trading for relief to apply from less than 50% to 20%; and
- considering whether shares traded on the Alternative Investment Market should be relievable at all.
Other suggestions are helpful, such as looking at structures involving holding companies and limited liability partnerships where relief is currently not available.
Given other, current priorities the recommendations are unlikely to be considered by the Government anytime soon but it will be interesting to see which, if any, of the recommendations they choose to adopt and whether they would, as the OTS suggests, introduce legislation sufficiently far ahead of it coming into force to enable taxpayers to rearrange their affairs if necessary,