The somewhat complicated Inheritance Tax (IHT) system could be under review, following a request by the Chancellor.
Philip Hammond has written to the Office of Tax Simplification asking for a review of IHT, after describing the levy and the regime in which it operates as “particularly complex”.
The IHT system has changed in recent years, with the introduction of the Residence Nil Rate Band (RNRB). The aim of RNRN is to take the family home out of the scope of IHT; IHT is charged at 40% of the value of the estate of a deceased person, which is above the threshold.
This won’t be the first time the OTS has looked at IHT. In its final report in 2011, the office mentioned the tax as one that it would be possible to simplify.
What are the rules around Inheritance Tax?
Under the current system, when someone dies and their estate is above the basic Inheritance Tax threshold (of £325,000), the estate may be entitled to an additional threshold (Residence Nil Rate Band) before any inheritance tax becomes due.
The Residence Nil Rate Band goes up yearly:
But the Residence Nil Rate Band is not straightforward and there are separate rules governing downsizing, moving into residential care, and second homes – which, no doubt, is why Mr Hammond wants the system looked into.
In the meantime, there are ways to mitigate the amount of Inheritance Tax paid on an estate by making plans during your lifetime. If you would like help with Inheritance Tax planning, or any other area of wills and probate, please get in touch with the team here at Optimum.