An All-Party Parliamentary Group (APPG) has urged the Government to reform the inheritance tax (IHT) system.
Under the proposals, the current 40 per cent tax rate would be reduced to 10 per cent, with estates with a value of £2 million or more being taxed at a rate of 20 per cent.
The group has also recommended that the seven-year rule is scrapped and replaced with a system in which all transfer of wealth is taxed at 10 per cent, whether that is in life or after death.
As a replacement for the seven-year rule, the group has proposed the introduction of a £30,000 annual allowance, with gifts and transfers over this amount incurring a 10 per cent IHT charge.
The IHT system has come under increasing scrutiny, with the chancellor Sajid Javid stating that reform was a possibility: “Sensible changes have already been made but it’s something that’s on my mind.”
IHT is currently liable at 40 per cent on estates with a value in excess of £325,000, which is known as the residence nil-rate band (RNRB). With house prices rising significantly in the past 15 years and the RNRB being frozen since 2009, more than 1.4 million people over the age of 60 now have an estate that is valued either near to or over the current £325,000 threshold.
The APPG has stated that the system needs reforming in order to ensure that families are not left with excessive IHT bills after the death of a loved one.
Priti Shah, Tax Partner in the Private Client department at OGR Stock Denton, said: “The Office of Tax Simplification also produced a report entitled ‘The Inheritance Tax Review’ in July 2019 suggesting very different changes to those proposed by the APPG.
“Of course, any changes to inheritance tax need to be considered hand-in-hand with any changes to capital gains tax because of the close interaction between these two taxes.”
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