Inheritance Tax changes ahead? - PKF Francis Clark
skip to Main Content
Merry Christmas! Our offices will be closed from 1pm on Christmas Eve, reopening on Tuesday 4 January.

Inheritance Tax changes ahead?

With Sajid Javid’s announcement today that his first Budget as Chancellor will be held on 11 March, thoughts turn to what may be included. One of the possibilities is that the Johnson administration could review inheritance tax and introduce some significant changes. There are two reasons for suggesting this:

  • The extensive review of inheritance tax undertaken by the Office for Tax Simplification (OTS) on which a report was issued in July 2019
  • It is likely that the new government will want to set the direction for tax policy for the new decade and be looking for some significant tax changes to set a new course. The fact that inheritance tax is a touchstone tax for many Conservative voters, along with the existence of the OTS report, makes this a front runner for some headline catching changes

The question is what changes might be likely to see the light of day?

It has been suggested that the Government may look to abolish some of the inheritance tax reliefs and at the same time cut the rate of inheritance tax. For a government that has won a popular majority, this would look a bold course of action given how few estates actually pay inheritance tax. It could also easily be perceived by the opposition parties as a tax cut for the very, very rich. So, whilst it’s possible, to my mind it’s unlikely.

If not then what else might be considered?

A major reform of gift allowances and exemptions, perhaps including merging the residence nil rate band into the nil rate band. This would give a higher limit of perhaps £475K or £500K with higher annual gift allowances and only a five year period required to be survived after gifts are made, rather than the current seven year period. Such changes could be portrayed as a major simplification (which indeed they would be) and would be likely popular with the well-off and moderately wealthy, who are likely to be the core target for any tax changes. It could also be shown to be moving away from a 1970s style tax, with maybe one last dig at Corbyn.

Such a reform would be likely to be expensive and the question is where the government would find the money from. There are some changes that could be made that would be net revenue raising and so could balance out any element of giveaway. These could include:

  • Abolishing the reduced rate of inheritance tax of 36% where more than 10% of the estate is given to charity
  • Increasing the qualification threshold for business property relief from 50% plus to the 80% threshold used for capital gains tax purposes
  • Restricting agricultural property relief so that it is merged into business property relief and only given to working farmers

That may not raise enough money and the government could go further and abolish the capital gains tax base cost uplift, where an inheritance tax exemption applies (such as business property relief). So, rather than getting a rebasing of an asset for capital gains tax purposes, the gain may only be automatically held over. In which case, the capital gains tax would still be paid by reference to the lower base cost in future.

Overall, it is possible that some fairly major changes could be introduced to inheritance tax. These could be seen as popular and appealing to the audience which the Conservative party wishes to appeal to, whilst at the same time being net revenue raising and so avoiding the risk of being accused of giving tax cuts to the very wealthy. However, as with all tax changes, someone has to pay somewhere and it is possible that it might be wealthy business owners who are having to fund more generous gift allowances for the wider population.

This article is the first in a series in advance of the budget. Alongside our usual budget day commentary, we will shortly be announcing details of a number of budget events (being held on 12 March across the region). For more information, please keep and eye on our events page or contact [email protected].

FEATURING: John Endacott
John is the firm’s head of tax. He provides high level tax advice combined with commercial acumen in terms of managing and advising on personal… read more
Back To Top