There will be a radical shake up of current inheritance tax rules if the government bows to pressure from a cross party group of MPs.
Under current rules, the inheritance tax system applies a rate of 40% on death estates. The MPs say this is unfair and are calling on the government to cut to the rate to 10%.
A report published by the All Party Parliamentary Group (APPG) on Inheritance Tax and Intergenerational Fairness, claimed that the current system was “complex, riddled with anomalies, distortionary and unfair.”
The report called for most reliefs on inheritance tax to be scrapped and said that the rate should only rise to 20% on death estates worth in excess of £2 million.
John Stevenson MP, chair of the APPG, warned that the current system led to a “strong sense of injustice” adding that “the rich get away with not paying and IHT is perceived as an unfair penalty on hard working savers.” He said: “Our bold proposals for reform seek to address this unfairness by simplifying the system and ensuring that the higher value estates that currently take advantage of so many reliefs and exemptions actually pay some IHT.”
There is a downside to the proposals though for anyone wanting to pass on lifetime gifts.
The AAPG propose an end to passing on tax-free lifetime gifts by slapping an instant 10% tax on all gifted sums over £30,000 a year.
Rachel Griffin, tax and financial planning expert at Quilter, said “Under the APPG proposals there will be an annual allowance of £30,000 a year. However, we know that many parents and indeed grandparents are looking to pass on their wealth while they are still alive, be it for school fees or to get on the housing ladder.
And with the generations of today being the first to be worse off than their parents, taxing the flow of wealth being passed down might not win the government any favours.”
The government though is remaining non comital on their position. A Treasury spokesperson commented: “Inheritance Tax makes an important contribution to public finances. We keep the tax system under constant review and will consider the APPGs findings.”
If you want to make sure that you have planned for the future properly, contact our wills and probate team on 01302 320621 or email email@example.com