Research suggests many individuals ‘unaware of IHT rules’ when gifting money

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Research carried out by the Institute for Fiscal Studies (IFS) and the National Centre for Social Research (NCSR) has suggested that only 45% of individuals seeking to gift money are aware of inheritance tax (IHT) rules and exemptions.

According to the IFS, the research aimed to ‘analyse individuals’ awareness of IHT rules and exemptions’. It also ‘explored the prevalence of gifting in the general population and how it varied between different groups’, and considered the ‘nature of gifting’.

The research found that just 25% of so-called ‘gifters’ have a ‘working knowledge’ of IHT rules in relation to gifting. However, many individuals have sought additional information on the rules.

12% stated that they wouldn’t have given a gift had IHT rules or exemptions not been in place. The research suggested that, of those who reported that they were influenced by IHT rules, only 38% said that passing on assets was a purpose of the gift.

Older people are ‘more likely’ to be gifters than young people, according to the data. 24% of individuals aged 70 and over have gifted in the past two years, compared to just 3% of those aged between 18 and 29.

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OTS calls for overhaul of inheritance tax regime

The Office of Tax Simplification (OTS) has urged HMRC to overhaul the UK’s inheritance tax (IHT) regime.

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In January 2018, Chancellor Philip Hammond commissioned the OTS to carry out a review of the IHT regime, and outline ways in which the tax can be simplified.

In its report, which is the first of two, the OTS stated that many individuals’ concerns relate to administrative issues. The report revealed that 38% of those who chose not to use an adviser spent over 50 hours on estate administration. An additional 65% of individuals stated that, despite there being no IHT to pay, they still had to provide ‘significant amounts’ of information.

The OTS has outlined a range of measures designed to ‘help make IHT simpler and easier to understand’. According to the OTS, HMRC should consider implementing a ‘fully-integrated’ digital system for IHT; changing the current IHT forms to ‘reduce and simplify’ the administration of estates; and reviewing its IHT guidance to ensure it is ‘clear, consistent and easy to navigate’.

Commenting on the report, Paul Morton, Tax Director at the OTS, said: ‘It has been hugely positive to have had the benefit of so many personal insights into the experience of dealing with IHT, alongside deep engagement with many professional advisers.

‘This has been key to informing the overview of the tax that the report provides, and will underpin the OTS’s continuing work on its second report.’

AAT outlines proposals to ‘protect taxpayers from tax rises’

In a new report, the Association of Accounting Technicians (AAT) has outlined a range of proposals designed to help raise funds for the NHS without instigating tax rises.

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The publication of the report comes following the Prime Minister’s recent pledge to raise £20 billion per year for the NHS by 2023/24. In response to this, the Office for Budget Responsibility (OBR) warned that tax rises will be required in order to fund NHS budget increases.

According to the AAT, its proposals would ‘raise over £27 billion’ while protecting UK taxpayers from increased government borrowing or tax rises.

Within the report, the AAT has urged the government to simplify inheritance tax (IHT); abolish the Marriage Allowance; remove higher rate tax relief for pension contributions; and switch stamp duty liability from the buyer to the seller.

The AAT acknowledged that some of its recommendations would ‘raise significant political challenges’, but stated that the proposals ‘make financial sense’.

Commenting on the matter, Phil Hall, Head of Public Affairs and Public Policy at the AAT, said: ‘AAT’s recommendations will not clear the deficit or enable investment to be showered across the country, but they do identify over £27 billion of annual savings and deserve serious consideration as a worthwhile, credible and thought-provoking contribution to the UK taxation and investment debate.’

The report can be read in full here.

HMRC urges taxpayers to declare offshore assets

HMRC is urging UK taxpayers to declare foreign income or profits on offshore assets ahead of the 30 September 2018 Requirement to Correct (RTC) disclosure deadline.

The RTC legislation requires taxpayers to inform HMRC about any offshore tax liabilities in relation to income tax, capital gains tax (CGT) or inheritance tax (IHT).

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Renting out a property abroad, transferring assets and income from country to country, or renting out a property in the UK whilst living abroad may result in taxpayers receiving a significant tax bill in the UK.

HMRC has stated that, under the Common Reporting Standard (CRS) initiative, from 1 October 2018 over 100 countries will be able to exchange data relating to taxpayers’ financial accounts. HMRC said that the CRS will ‘significantly enhance’ its ability to detect offshore non-compliance. It is urging taxpayers to therefore ensure any non-compliance is corrected before 30 September.

‘Since 2010, we have secured over £2.8 billion for our vital public services by tackling offshore tax evaders, and we will continue to relentlessly crack down on those not playing by the rules,’ said Mel Stride, Financial Secretary to the Treasury.

‘This new measure will place higher penalties on those who do not contact HMRC and ensure their offshore tax liabilities are correct. I urge anyone affected to get in touch with HMRC now.’

Taxpayers can amend their offshore tax liabilities by using HMRC’s digital disclosure service: this can be accessed here.

Official data reveals ‘record amount’ of inheritance tax collected by HMRC

Official figures have revealed that HMRC collected a ‘record amount’ of inheritance tax (IHT) in the 2017/18 tax year.

IHT receipts totalled £5.2 billion in 2017/18, the data showed – a rise of 8% when compared to the amount collected in 2016/17.

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It also revealed that the total number of UK estates liable to IHT has increased every year since 2009/10.

The official data contains information on IHT receipts, estates that pay IHT, IHT tax reliefs and exemptions and the asset composition of estates left on death.

IHT is payable at 40% on any part of an estate that is worth more than £325,000 at the time of death (the ‘nil-rate band’). The tax may not be payable in some circumstances, for example in the case of business assets; most gifts given between spouses and civil partners; and assets given as gifts while the deceased was alive (as long as they lived for seven years after giving the gift, or certain anti-avoidance provisions don’t apply).

Commenting on the data, Steve Webb, Director of Policy at insurers Royal London, said: ‘The amount of money raised from IHT has doubled in less than a decade, and a steadily rising proportion of estates are now caught within the IHT net.

‘Even the introduction of an additional nil-rate band for families passing on a home to their children was not able to stem the growth in IHT revenues. Yet the tax remains complex and riddled with anomalies.’

As your accountants, we can help you to minimise the IHT due on your estate. Please contact us for more information.

Think tank proposes replacing inheritance tax with ‘Lifetime Receipts Tax’

In a new report, think tank the Resolution Foundation has suggested that inheritance tax (IHT) should be abolished, and be replaced by a new ‘Lifetime Receipts Tax’.

According to the Resolution Foundation, IHT is ‘not fit to deal with wealth’ in modern Britain, and is ‘regarded as the UK’s least fair tax’.

As such, the think tank has recommended its abolition, to be replaced by a new Lifetime Receipts Tax with a ‘much lower rate’ than the current 40% standard rate of IHT.

As part of the Lifetime Receipts Tax system, each individual would have a lifetime allowance of £125,000, after which tax would be payable at a rate of 20%, up to £500,000. Beyond this, tax would be payable at a rate of 30%, the Resolution Foundation stated.

‘Inheritances are already worth over £100 billion a year, and their doubling over the next 20 years means they are going to play an even larger role in shaping British society,’ said Adam Corlett, Senior Economic Analyst at the Resolution Foundation.

‘But the current system of IHT is not fit to deal with this societal shift.

‘Rather than tweak our failed IHT system, it should be scrapped altogether and replaced with a new Lifetime Receipts Tax. This new system would be fairer to families, harder to avoid and would ensure our tax system keeps up with 21st century Britain.’

Chancellor commissions OTS to review inheritance tax rules

Chancellor Philip Hammond has commissioned the Office of Tax Simplification (OTS) to review the UK’s inheritance tax (IHT) regime, and outline ways in which the tax can be simplified.

In a letter to Angela Knight, Chair of the OTS, and its Tax Director, Paul Morton, the Chancellor acknowledged that the existing IHT regime is ‘particularly complex’.

He stated: ‘I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.’

Mr Hammond suggested that the OTS’s review should focus on technical and administrative issues surrounding the tax, alongside practical issues related to estate planning and disclosure.

The review should also examine how existing gifts rules interact with the IHT system, and look at whether the current rules cause taxpayers to rethink their decisions in regard to transfers and investments, said the Chancellor in his letter.

IHT is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. The residence nil-rate band (RNRB) also applies in addition to the nil-rate band, meaning that a family home can be passed wholly or partially tax-free on death to direct descendants, such as a child, grandchild, step-child, adopted child or fostered child.

A scoping document for the review into IHT will be published ‘in due course’, the OTS said.