23 June 2015
IHT Reform has been confirmed as being an immediate part of the UK government’s agenda by way of two written questions and answers published on the www.parliament.uk website. Both questions were asked of and answered by David Gauke, Financial Secretary to the Treasury and both answers left no room for misinterpretation;
“The Government has commitment to take the family home out of inheritance tax for all but the richest with a new transferable main residence allowance of £175,000 per individual in addition to the inheritance tax nil-rate band, which is currently set at £325,000 for individuals.
This creates an effective £500,000 inheritance tax threshold for individuals in certain circumstances. Any unused main residence allowance or nil-rate band for each individual would be transferred to their surviving spouse or civil partner, which is in line with existing principles and means the effective inheritance tax threshold will rise to £1 million in certain circumstances once the policy is introduced.”
“In the March 2015 Budget the Government announced that it would undertake a review of how deeds of variation are used for tax purposes. The findings from this review will be reported in the Autumn.”
The Nil Rate Band, the amount of inheritance which a person can leave before an inheritance tax liability is suffered, was set at its current £325,000 per person level at the start of the 2009/10 tax year and has remained frozen ever since (a freeze intended at the time to last 7 years). The proposition of a main residence allowance will therefore be a welcome relief for the mass of homeowners who have been drawn within the inheritance tax net as a result of the static NRB.
But will this be a case of giving with one hand whilst taking away with the other? Deeds of variation have for many years been a legitimate way of dealing with situations where the will of the deceased might not give a suitable outcome for family beneficiaries. Whilst abuses exist within all walks of the tax system it seems that a couple of high profile deeds sensationalised by the press, not least in relation to the Miliband family, seem to have brought these arrangements under the Treasury’s microscope.
As with all things tax, the detail of these measures will be key and we will be particularly interested in the effect of the main residence allowance on those people who’ve moved out of their former home and into some form of care.
On a slightly different aspect of inheritance tax, 6 July 2015 will see the coming into force of The Inheritance Tax (Electronic Communications) Regulations 2015. Not the most exciting of documents in the world, but important in that it will begin to pave the way for electronic delivery of inheritance tax forms and payments in the same manner as many of the annual taxes have been digitised.
If you would like to discuss the details of this blog post further, please contact Graham Boar from our Letchworth office or a tax adviser at your nearest location. Alternatively, you can complete our online contact form.