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31 Jan 2018

Chancellor orders review of inheritance tax rules

The rules on inheritance tax (IHT) are “particularly complex” and would benefit from simplification, according to Chancellor Philip Hammond.

He has asked the Office of Tax Simplification to review the current IHT regime with a view to simplifying the complicated rules on passing on wealth after death.

In a letter, the chancellor said he wanted “to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible”.

The review is expected to cover the process of submitting returns and paying the tax, as well as practical issues around estate planning and disclosure.

It will also look at whether the current rules distort the way people decide on transfers, investments and other types of transaction.

Inheritance tax is paid at a rate of 40% on the estate — including the property, money and possessions — of someone who has died.

It doesn´t apply when the value of the estate is below the current £325,000 threshold, or if everything is left to a spouse or civil partner.

Recent changes in the rules allow people to pass on more if they own their home and give it to direct descendants. There are also complicated rules on things like passing on assets tax-free if you live for seven years, and giving gifts out of income.

Irwin Mitchell Private Wealth partner Anthony Nixon said the review was “well overdue”. He stressed the importance of considering those who will be affected by any changes, adding: “Simplification mustn´t come at the expense of fairness and justice to the families and beneficiaries who should receive inheritances.”

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