The OTS has just released its second report into the design of inheritance tax; Neil Jones, Wealth and Tax specialist at Canada Life shared his observations with IFA Magazine.
“There are both welcome recommendations and missed opportunities here.
“This is a more substantial package of recommendations than we saw in the first review which, if adopted, would lead to significant changes to the way IHT works.
“While still not a root and branch review of IHT, it does seek to deal with major areas of confusion and, in some cases, injustice, and we’d urge the Government to implement some of these ideas.
“The rules around gifting are ripe for review. One recommendation is to cut the 7 year rule down to 5, so if you gift after five years it can effectively be done outside of IHT. This would obviously help more clients. It’s also proposed to remove the ’14 year rule’ entirely, meaning there would be no need to take in to account gifts made outside of the existing 7 year period.
“Getting rid of taper relief will be welcomed by many, as it’s extremely confusing even for many professionals.
“While tough for clients, removing the capital gains uplift will make it a more even playing field when it comes to other assets.
“One recommendation in particular will make life easier for clients – removing the need to put life policies in trust to avoid IHT. If implemented, there would be no need to create and therefore register a trust, which removes the possibility of unfair IHT charges during the life of the trust as there isn’t one.
“There’s also a big missed opportunity. The report basically says it’s too early to look at the residential nil rate band – many advisers will see this as a mistake, as this area is both extremely complicated and often unfair in its application.”