Radical Inheritance Tax Review

There is a saying that Inheritance Tax (IHT) planners make more out of IHT than the taxman.

Various tax bodies have contributed to a report recommending the abolition of IHT in its current form, replacing it with an entirely different regime.

Lifetime and death gifts would be taxed at a low flat rate of 10%, compared with 40% now. and most of the reliefs and exemptions would be abolished, including Agricultural and Business relief, the seven year rule for potentially exempt transfers (PETs), and the capital gains uplift on death.

Cutting rates should lead to less avoidance while keeping the UK attractive for wealthier individuals.

The current system allows unlimited tax-free lifetime gifts (PETs), if the donor survives for seven years. The report proposes to abolish that. Gifts under £30,000 each year would be tax-free, and gifts above that would be taxed at 10 per cent immediately. No further tax would be payable at death on those gifts, giving families incentive to gift and certainty in planning.

A higher rate of 20% would apply to estates over £2m.

The taxation of trusts would thereby also be simplified and the ability to give away £325,000 tax-free every seven years to trusts would go.

The biggest question is, if it that easy, what will I do with my spare time?

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