The All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (APPG IIF) has published a report which recommends a complete overhaul of the current inheritance tax regime. The recommendations would see an entirely new regime introduced, with removal of most of the reliefs and a simplification of what is often seen as an over complicated and unfair system.
The APPG proposals would tax lifetime and death transfers of wealth, at a low flat rate of 10 per cent, compared with the 40 per cent levied at present on estates valued above the nil-rate band (NRB). The APPGs report also recommends abolishing most of the reliefs, including agricultural and business property relief, the seven year rule for potentially exempt transfers, and the capital gains uplift on death. The gift allowances would also be replaced with one annual tax free personal gift allowance of GBP30,000 which would be taxed at 10 per cent immediately if exceeded.
For estates above GBP2 million, the IHT rate would rise to a maximum of 20 per cent, which evidence suggests is the rate at which people begin to resort to tax planning to minimise their IHT liabilities. Thus, by cutting rates, the proposal would lead to less avoidance while keeping the UK as an attractive domicile for wealthier individuals. The NRB would be replaced by a 'death allowance,' set at a similar level to the current NRB of GBP325,000, available only on death, irrespective of previous lifetime giving.
The current system of potentially exempt transfers (PETs) allows large amounts of wealth to be passed on tax-free by lifetime gifts, if the donor survives for seven years. The APPG report proposes to abolish PETs. Instead, gifts under GBP30,000 each year would be tax-free, and gifts above that threshold 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.