Inheritance Tax: How Will New OTS Report Affect You?

Posted Aug 20, 2019.

 

A recent report based on a review carried out by the Office of Tax Simplification (‘OTS’) makes the proposal that the ‘seven year rule’ covering the giving of gifts as part of an individuals estate planning should be reduced to five years.


The ‘seven year rule’ has long been an integral part of Inheritance Tax law, which itself has often been described as the UK’s most hated tax. The OTS review proposes that executors and beneficiaries of wills would in future only need to declare gifts made up to five years prior to death. Although inheritance tax only affects around 5% of estates per year (currently around 25,000), the proposed changes would result in an overall loss of tax revenue for the exchequer. 

As well as the headline reduction to five years, the OTS report also recommends an overhaul of the current range of gift exemptions, which are often a source of confusion and delay when an estate is being administered. The exemptions would be replaced with a ‘single personal gift allowance’, a fixed amount that everyone would be entitled to receive each year, free of tax. Such a move would also mean that the current annual exemption, whereby an individual may make gifts up to £3,000 per year without this being added to their overall estate value, would also be scrapped.

Inheritance Tax on Estates


Under current legislation, there is a threshold of £325,000 over which inheritance tax starts at a rate of 40%. This 40% rate also applies to gifts made in the three years prior to death; between three and seven years, the rate is calculated on a tapered, sliding-scale basis. The OTS also proposes that this ‘taper relief’ should also be scrapped, even though this may create a ‘cliff edge’ scenario where just a single days difference may mean either paying 40% or nothing at all. 

Industry experts, whilst overall welcoming the proposals, have also expressed concerns, with some considering the end of taper relief at five years being a somewhat cynical tax grab and revenue raising device. 

Will Writing and Estate Planning services

Bakers Solicitors offer you a complete, easy to understand and friendly Will Writing service. 

We listen to you and ascertain your wishes and concerns and advise you on your options during the Will Writing process. We then draft your Will checking always that it is accurate and appropriate for your needs and wishes. No two Wills are exactly the same and your Will shall be tailored for you and what you want.We ensure that your Will is correctly signed and witnessed. We offer a safe and secure Will storage facility too.

Making your Will with Bakers Solicitors is easy, convenient, fast and rewarding. Don’t put it off any longer. Call now on (01252) 744637  and speak to Simon, our Estate Planning Manager, or email simon.speed@bakerssolicitors.com