By Dorothy Appleby
At the beginning of this year I found myself reading article after article following the UK Government’s Office for Tax Simplification report about the failings of our convoluted inheritance tax system. They had proposed monumental, sweeping reforms including scrapping the nil rate band system altogether, along with all the extensive exemptions and replacing this with one flat rate tax for every single estate. There was also talk about removing the potentially exempt transfer (PET) system for lifetime gifts and therefore making every lifetime gift of capital immediately taxable at the same flat rate.
Left and right advisors were discreetly warning clients to expedite any plans they had for large lifetime gifts and stealing themselves for what was potentially a complete overhaul of the system we have all become so accustomed to. But then nothing. The April budget came and went and Rishi Sunak barely wobbled the boat, let alone rocking it or flipping it on its head, a huge anti-climax. Yes, the Chancellor froze the tax allowances until 2026, but as the existing nil rate band has been frozen since 2009 this barely warranted a paragraph in the newsletter. So, what now?
Last month I read another article from the Organisation for Economic Cooperation and Development (OECD), a company that provides advice and guidance to 36 countries across the world. The message was another resounding call to “raise inheritance tax!” to address wealth inequality and increase revenue. It is my feeling that changes are afoot.
While I would be hesitant to advise my clients to rush and take advantage of the existing system, I would perhaps encourage them to be aware of the shift in feeling and what this might mean for them. If clients are intending to make lifetime gifts of capital or income, a deposit for their child’s house for example, then maybe they should approach us for a conversation. It’s always better to be safe than sorry.