The Chairman of the Treasury Select Committee, has called on George Osborne to change "extremely complex" inheritance tax (IHT) reforms which are due to be implemented in April 2017.
Andrew Tyrie has criticised the reforms, saying they have "the hallmarks of unsustainability", continuing that "Inheritance Tax Provisions were already long and extremely complex. The draft clauses... reinforce my concern that the latest Budget will make them even more complex."
Inheritance Tax now affects a large number of people. Bizarrely many of these people are not wealthy enough to afford highly skilled tax advice which means that many of them may make ill-informed decisions about whether and when to sell their house and/or re-write their wills.
Commonly lay executors (those who are not professional) forget to claim all the IHT allowances and therefore end up paying more IHT than they need to.
It is anticipated that more than a million estates will be affected by IHT in the next few years and that this number largely represents those commonly called “strivers” – people who, after decades of hard work, have accumulated enough to pass something on to their relatives.
Revenue from IHT was around £3.8 billion in 2014-15, rising by 11.9% compared to 2013-14. Properties, household savings and securities made up the bulk of most taxpaying estates. The level of receipts was also affected by the freeze in the inheritance tax Nil Rate Band, which has been held at £325,000 since April 2009.
The new ‘main residence nil rate band' announced last year, has added a further ten pages of legislation to the Finance Bill and an extra layer of complication to estate planning.
A far simpler approach would have been to increase the existing standard nil rate band of £325,000 in line with house price inflation.
The main residence nil rate band is available in addition to the existing nil rate band of £325,000 from 6 April 2017 at the following rates:
However, the rules for claiming it are complicated and quirky. For instance if you have a Will which provides for your estate (including your interest in the property) to pass into a Discretionary Trust (even if the only beneficiaries are your children and grandchildren), your estate is unlikely to qualify for the relief.
The amount of main residence nil rate band is also reduced if the value of your combined estate exceeds £2,000,000.
The relief can only be claimed against a freehold or leasehold residence, and therefore unless your estate includes a property which you used, or intended to occupy as your home, the main residence nil rate band cannot be claimed.
If your property value does not equal or exceed the amount of main residence nil rate band allowance then any 'unused' allowance' cannot be applied against the value of other assets comprised within the estate.
We suggest that as a result of the proposed legislation, individuals and couples consider reviewing their Wills to ensure that as far as possible their estates will qualify for the new allowance.