James Hay: Proposed inheritance tax reforms

Graeme Robb of James Hay’s Technical Unit comments on the proposed inheritance tax reforms announced by the Conservative Party.

Says Robb: “These IHT proposals are contained in an eye watering 211 page report submitted to the Shadow Cabinet by the Economic Competitiveness Policy Group (ECPG). The fact that the IHT proposals generated such publicity reminds us as to how emotive IHT can be for a tax which contributes less than 1 per cent toward total HMRC tax receipts (per 2007/08 official estimates). Indeed, the forecasted IHT receipts of £4 billion amount to less than half of that raised through tobacco duties. Also Capital Gains Tax (CGT), which attracts much less attention, will raise more money by 2007/08 official estimates). Basically, CGT arises on gains from sale of shares, investments, family business and so on. Some would argue then that IHT is doing likewise - taxing beneficiaries at a time when they are most able to pay given that they have just received a windfall. This simplistic view is though at odds with general sentiment.

“The ECPG report recommends the abolition of IHT. Regarding CGT, they propose that it should not apply to any asset held for more than ten years. If held nine years then 10 per cent of the gain would be taxable and so on; although a person's home would remain exempt. In addition, they propose that death estates should pay this new CGT.

“Although we do not know if the Conservatives will adopt these proposals, there does seem to be a momentum building for a review of IHT with rising house prices being the main catalyst. Earlier this year, the Rt Hon Lord Burnett called for a major reform of IHT in a speech to the House of Lords. Witness also high profile tabloid newspaper campaigns other recent reports.

“James Hay welcomes debates such as these given that 38,000 families are projected to pay IHT in the current tax year, and as more and more taxpayers fall within the IHT net then the more important it is for clients to seek independent advice on estate planning and IHT issues. We offer a range of trusts via the Wrap platform for these purposes. These were drafted recently in conjunction with an expert tax barrister and fully reflect recent changes made by Gordon Brown to trust taxation.

“In addition, IFAs who support the Wrap platform have direct access to the James Hay Technical Support Unit who have been offering taxation and trust information to IFAs for over 10 years. Over this period, changes to taxation and trusts have been huge, and it is vital that clients ensure the advice they obtain keeps pace. In this climate of change, IHT has remained broadly unchanged but it would appear that this might be about to change.”