Inheritance Tax Simplification - the devil is in the detail
If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. The Normal Expenditure Out of Income inheritance tax (IHT) exemption has long been accepted as simple yet effective tax law. This is demonstrated by the shortage of reported tax cases on the matter. However, a recent report by the Office of Tax Simplification (OTS) has laid the path for HMRC to abolish this exemption.
In simple terms, the normal expenditure out of income exemption or sometimes known as the gifts out of income exemption, protects from inheritance tax many straightforward family transactions, such as:
Parents taking adults (over 18) children on holiday, out for meals or just generally helping with their living expenses
Birthday and Christmas presents
The simple transactions within families that no one ever records.
But in yet another series of headline grabbing announcements the OTS propose s a simplification of IHT for lifetime giving by introducing, a fixed annual allowance for ‘gifts out of income’ capped at £25,000 and a need for detailed record keeping. In addition, the report also suggests:
Significant changes to gifts in respect of business interests (including farms and agricultural properties)
Changes to the interaction of inheritance tax and capital gains tax
While there are some positives in these proposals, undoubtedly there are also factors which will be viewed negatively. The devil is certainly in the detail of this report and will understandably cause a lot of concern among people unsure how any new tax legislation will impact on them.
For any guidance in understanding your IHT obligations, and how the new proposals could impact you and your tax planning, please contact Ryan Harrison at Leathers.
* Ryan Harrison is Partner and Head of Private Client at chartered accountants Leathers. Please do contact Ryan at any time on 01423 740761 or firstname.lastname@example.org or call in to Leathers’ Harrogate office on 7 Cheltenham Mount, HG1 1DW.