Murray Beith Murray Associate, Caroline Pringle, is interviewed by The Scotsman online today, ahead of hosting a new webinar on 26 June, covering current Inheritance tax thresholds and reliefs, proposed changes and their implications.
Read the full article below, republished by kind permission of The Scotsman:
Changes are on the cards both to simplify an over-complicated tax regime and to help pay for the government’s soaring Covid-19 costs.
The Chancellor’s bid to offset the £14bn per month costs of its furlough scheme is expected to spark changes to inheritance tax rules, meaning a range of current reliefs could be for the chop.
They include Business Property Relief (BPR) and Agricultural Property Relief (APR) - which help business owners pass on assets without being hit by inheritance tax – and gifts made during a person’s lifetime which are generally tax-free.
According to Caroline Pringle, Associate of private client law firm Murray Beith Murray, a major revamp of the complex inheritance tax system – along with changes to simplify UK inheritance tax laws in general - has been predicted for some time.
Prior to the pandemic, both the Office of Tax Simplification and the All-Party Parliamentary Group for Inheritance and Intergenerational Fairness recommended published reports setting out their recommendations for the Government for reform of Inheritance Tax, the latter of which proposed radical reform of the tax.
But while the pandemic and Brexit mean it’s unlikely that there is the manpower needed to overhaul the entire UK Inheritance tax system imminently, Chancellor Rishi Sunak’s plans for a mini-budget in July could hint at tax increases over the board and possibly changes to the current inheritance tax regime which are easier to implement.
Adjustments to inheritance tax, could lead to calls for people to revisit their estate plans now in preparation for what may be ahead.
“Government spending on coronavirus is eye-watering and raising taxes is one way to pay for all of this. Inheritance tax is often regarded as an unfair and complex tax – it’s ripe for reform.”
“While wider reform is probably coming, at the moment the government will be looking at how to easily raise revenue and that could mean reducing or restricting the reliefs currently available,” Ms Pringle added.
Inheritance tax is charged at 40% and kicks in when the value of an estate rises above the £325,000 threshold. That threshold can increase to £500,000 if someone opts to leave their estate, which must include their family home, to their children or grandchildren.
However, confusing rules along with rising property values, means some people may be unaware of how their family may be affected by inheritance tax.
It has been speculated that BPR and APR may be vulnerable in the current economic climate.
Ms Pringle said that in many cases, tax relief under the BPR and APR rules can be as much as 100%.
“The government may perhaps look to restrict the level of that relief available,” she added. “There has also been talk about changing the BPR ‘wholly and mainly’ trading test so that it aligns with the capital gains tax trading test.”
Currently to benefit from BPR, a business must generally meet a 50% trading threshold. However, the Office of Tax Simplification report has suggested that figure rise to 80% to match the Capital Gains Tax ‘substantial trading’ threshold.
“Rather than abolishing the relief altogether, a restriction would be easier for business owners to accept in the current economic climate,” Ms Pringle added.
If this change is implemented, individuals would need to review their business interests to establish whether they are likely to qualify for Inheritance Tax relief and whether any restructuring could be carried out within the business to improve the likelihood of qualifying for this relief.
There is the chance that ‘lifetime’ gifting rules, which currently enable people to gift an unlimited amount without Inheritance Tax implications, as long as they live for a further seven years, could be reviewed.
Individuals may want to consider handing over ‘gifts’ in the form of cash, assets or shares, and take advantage of current rules.
“For inheritance tax and capital gains tax purposes, it is the market value of the gift on the date you make it that is relevant. So, at a time when market values are depressed, there may even be planning opportunities to be had.”
She added: “We know the rules now and there’s a chance they might not exist in the future. It may make sense to take action now rather than delay.”
Other reform proposals include reviewing the capital gains tax uplift on death, which currently enables someone to inherit an asset at the uplifted date of death market value.
Ms Pringle added: “In lockdown people are now finding their diaries rather less busy than before This is allowing them the opportunity to sit down and address what they want to achieve with their Wills and succession plans.”
“Our advice is don't hold off looking at your options, but also don’t rush into anything without seeking guidance.”
Murray Beith Murray’s specialists are continuing to work remotely and provide ‘virtual’ meetings to help advise on wills, estate planning and succession plans.
Meanwhile, Ms Pringle will host a webinar on June 26, that will cover current Inheritance tax thresholds and reliefs, proposed changes and their implications.
If you have any questions about the issues covered in this article, or if you would like to discuss estate planning with our specialist lawyers, please call fill in our contact form or call us on 0131 341 3741 .
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