Recently, Chancellor Sajid Javid hinted at a cut to inheritance tax. Thomas Rimmington, head of private client and tax specialist at Brown Turner Ross solicitors based in Merseyside discusses what this means.
The Tories are looking to reform inheritance tax by making it fairer and simpler and for this reason the Chancellor of the Exchequer asked the office of tax for simplification to carry out a review for the Government. One of the things they are looking at is the treatment of taxation of lifetime gifts and they are considering reducing the requirement from seven to five years for the time the donor of a gift has to survive to ensure that this gift is free of tax. Furthermore, allowances such as the ‘annual exemption’ are out of date going back to 1980 and in need of updating. The recent legislation allowing couples to leave their home to their children and claim another allowance of £175,000 each is deemed unfair by some, as single people who do not have children cannot take advantage of this allowance.
Labour on the other hand, are talking about a major overhaul of the tax, whereby the recipient of a gift of more than £125,000 in value during their lifetime is liable to pay income tax on any excess.
My opinion is that inheritance tax should be reformed rather than scrapped for the reasons highlighted above. The Government are receiving more money from this tax and I would have thought would be reluctant to abolish it. If the Government scrapped inheritance tax it is more than likely that other taxes would go up, or other Government cuts would occur to make the books balance.
Labour’s plan is based on the system we see in some European countries, whereby the beneficiary, rather than the estate of a deceased person is taxed. The problem with Labour’s proposal is that it will have an impact on the housing market, for example, when parents give money to their children to buy a home, their son or daughter would be liable for income tax if the gift exceeded £125,000.
In short, I agree that the inheritance tax rules are ripe for reform rather than being abolished and should also be made fairer and less complicated.