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Old 03-08-2018, 05:00 PM
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Default Canarian Weekly: UK inheritance tax to be simplified?

IF you struggle to navigate the UK’s Inheritance Tax (IHT) regime, you are not alone. Whether you are setting up your estate planning, or sorting out the estate of a departed family member, the system can be hard to follow.

Getting your planning wrong may mean your family are faced with unexpected, high, inheritance-tax bills. Now Chancellor Philip Hammond has acknowledged that the rules are “particularly complex”, and asked for a review.

UK IHT follows expatriates around the world, since it is based on domicile, rather than residence. While long-term expatriates can adopt a “domicile of choice” outside the UK, this takes time, and is a complex area, so specialist advice and careful planning are essential. If you do shed your UK domicile, only assets situated in the UK are liable to IHT.

Expatriates should continue to follow changes to the UK IHT rules, and understand how it interacts with the local inheritance tax in their country of residence. Cross-border estate planning can be challenging, particularly if you have assets in different countries, or complex, family situations.

IHT is charged at 40% on your total, worldwide estate in excess of the current threshold of £325,000 (potentially £650,000 for a couple). A new Residential Nil Rate Band (RNRB) came into effect in April 2017: estates may be entitled to an “additional threshold”, before any IHT becomes due.

Starting at £100,000 this tax year, it will increase by £25,000 each year until reaching £175,000 in 2020/21 (and then rise with inflation). It only applies to qualifying, residential property left to direct descendants. Estates over £2 million receive a smaller allowance or nothing at all, depending on the value.

While a higher threshold is, of course, welcome, this new “family-home allowance” has an added extra complication. It has also been criticised for discriminating against those who do not have children or property. The rules for lifetime gifts can be even more complex, with the annual exemption frozen at £3,000, since 1981.

Now, Chancellor Philip Hammond has written to the Treasury’s Office of Tax Simplification (OTS): “Inheritance tax, and the system within which it operates, is particularly complex, and I would like to request that the OTS carry out a review. I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose, and makes the experience of those who interact with it as smooth as possible.”

For many tax practitioners and wealth-management advisers, this review is long overdue. Besides the taxation of gifts and the new RNRB, the IHT regime for trusts can be a minefield.

It is still early days, so we now have to wait and see, and hope, that the system will be improved. However, we need to be realistic and not expect this review to result in much lower IHT bills. IHT is a good earner for the government; HM Treasury expects to raise £5.3 billion in 2017/18, and £6.5 billion by 2022/23.

All this illustrates the importance of taking professional advice for your estate planning. Make sure you are up to date on the rules, are navigating them correctly, and shielding your family from paying any more tax than necessary. Too many families pay IHT that could have been mitigated with specialist knowledge and careful planning. Don’t let this happen to your family.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices, which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com
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