Will we see changes to inheritance tax following the general election?

 
Following the release of the parties’ manifestos for the upcoming general election, Devorah Ormonde examines reviews the potential for changes to inheritance tax being made by the new parliament.
The Office of Tax Simplification was instructed to undertake a review of inheritance tax in January 2018, culminating in two reports containing recommendations for modifications having been published in the last twelve months. Notwithstanding this, of the major political parties standing for election in England it is only the Green Party, the Brexit Party and UKIP that are proposing radical changes to the inheritance tax regime.
 
As the latest Survation poll published on 2 December 2019 projected these three parties to have a 7% share of the vote and only one parliamentary seat between them, it seems almost certain that none of these parties will be in a position to implement these proposals. It is therefore likely that inheritance tax will continue to be levied on estates throughout the next parliamentary term.

Whilst the Green Party favours consolidating inheritance tax and other taxes into a land wealth tax, the Brexit Party and UKIP have pledged to abolish inheritance tax altogether on the basis that it constitutes double taxation on assets accumulated over a lifetime. The Brexit Party notes that the tax has long been unpopular even amongst those whose estates are not large enough to have to pay it. They have also pointed out that it represents less than 1% of revenue raised from all taxes.

Although this may be correct, the revenue raised from inheritance tax is still projected to total £5.3 billion for the current tax year. This is hardly insignificant, particularly at a time when the Conservatives, Labour and Liberal Democrats are all proposing higher levels of public spending. It may be for this reason that neither the Liberal Democrats nor the Conservative Party have indicated an intention to make any changes to the inheritance tax regime.

In contrast, the Labour Party has stated that it would reverse the inheritance tax cut brought in by George Osborne in 2015, quoting analysis from the Treasury that this relief was most likely to benefit high income and wealthier households and that abolishing it would potentially raise an additional £725 million a year by 2021/2022.

The inheritance tax cut to which they are referring is the introduction of the residence nil rate band. With the main inheritance tax allowance of £325,000 having been frozen since April 2009, the aim of the residence nil rate band was to make it easier to pass on a family home to children or grandchildren.

The residence nil rate band is being phased in over a three year period, starting at £100,000 in April 2017 and rising by £25,000 each tax year until April 2020 when it is due to increase to £175,000.  This can be added to the main inheritance tax allowance and transferred between spouses so that by April 2020, a married couple would be able to leave assets totalling £1 million to their children without incurring inheritance tax. This measure has already succeeded in removing thousands of estates from the scope of inheritance tax.

However, unlike the main inheritance tax allowance, the residence nil rate band is only available where the following conditions are met:
• The deceased owned and resided in the property. 
• The property is left to direct descendants (including stepchildren and foster children but not nieces and nephews) immediately upon the death.
• The value of the estate does not exceed £2 million (above this figure tapering applies).

Even though it has resulted in many estates now being exempt from inheritance tax, the conditional nature of the residence nil rate band has caused some controversy. In addition, to avoid discouraging people to sell their homes to downsize or move into residential care, an further layer of complexity was introduced to prevent the right to the residence nil rate band being lost in such circumstances.

It is therefore not surprising that the Office of Tax Simplification has suggested that the government considers alternative options, including the abolition of the residence nil rate band, when conducting any review of its effectiveness. Perhaps the new government will revisit these inheritance tax proposals once more pressing issues have been addressed.
 
Please contact Devorah Ormonde or call 020 7467 5757 for more information about Inheritance Tax.
 

Share this article

Submit to FacebookSubmit to TwitterSubmit to LinkedIn

City office

Ronald Fletcher Baker LLP
326 Old Street
London EC1V 9DR
DX: 137773 Finsbury 5

Telephone
020 7613 1402

Fax
020 7613 2711  

 

West End office

Ronald Fletcher Baker LLP
77A Baker Street
London W1U 6RF
DX: 42722 Oxford Circus North

Telephone
020 7467 5757

Fax
020 7467 5758

Manchester office

Ronald Fletcher Baker LLP
111 Piccadilly
Manchester M1 2HY

DX: 6967003 Manchester 94 M

Telephone
0161 694 4404

Fax
0161 638 0930

Istanbul Office

Ronald Fletcher Baker Danismanlik Hizmetleri Avukatlik Ortakligi
Hakki Yeten Caddesii
Selenium Plaza, No:10 C
K:16, Fulya Sokak
Sisli, Istanbul.

Telephone
07736 364222

Emergency number

07538 490647

Ronald Fletcher Baker LLP is authorised and regulated by the Solicitors Regulation Authority. Company number OC345891

City office ID 512598
West End office ID 523362.
Manchester office ID 630156

V.A.T. registration number: 2206798 63VAT

"Partner" denotes a senior member of the LLP or an employee with the equivalent standing.

PII cover - QBE Insurance (Europe) Limited. For further details please contact Rakeebah Rahim

Solicitors Regulation Authority Standards and Regulations

Website design by coolgrey

Photography: Camilla Greenwell

 

Get a free conveyancing quote

 

View our privacy policy

We encourage you to contact us in the first instance if you are unhappy with the service you receive from us. Contact John O’Callaghan, the complaints partner at j.ocallaghan@rfblegal.co.uk; alternatively in some circumstances you may be able to make use of the ODR platform.