The inheritance tax review is likely to mean taxpayers lose the valuable exemption for potentially exempt transfers (PETs) that allowed for transfers of assets to the next generation tax-free provided the donor survived for the next seven years
The Office of Tax Simplification has recently published their report into the future of a number of tax reliefs currently available to tax payers. Inheritance tax reliefs formed part of the overall review with the conclusion being that it is more appropriate for the whole of IHT to be reviewed rather than the individual reliefs. It was suggested that such a review may also encompass a review of capital gains tax as part of a longer term project.
According to experts at top 20 accountancy firm Saffery Champness, the review is likely to mean taxpayers lose the valuable exemption for potentially exempt transfers (PETs) that allowed for transfers of assets to the next generation tax-free provided the donor survived for the next seven years following the gift. Those considering gifts of assets to the next generation may be well advised to review and accelerate their plans to take advantage of the current PET regime.
Partner Liz Brierley explains:
“In certain regards the suggestions of the Office for Tax Simplification mirror the recommendations of the Mirlees Review prepared for the Institute of Fiscal Studies. This study suggested that there is a stronger case for a tax on lifetime receipts, taxing transfers received on an ongoing and cumulative basis, rather than the current tax on estates on death.
“One of the most valuable inheritance tax reliefs currently available allows an individual to gift assets to the next generation with no IHT charge arising as long as they survive for the next seven years. Such transfers of assets are known as potentially exempt transfers (PETs).
Given the above it is unlikely that this relief would be part of any new system for taxing transfers of value in the future. With this in mind it may be sensible to review and possibly accelerate any plans in place to make gifts of assets to the next generation to ensure that they are made under the current PET regime.”
“Looking at the big picture, the benefits of conducting a review could be questionable given that the IHT tax take is very small relative to several other taxes. It is to be hoped that when deciding whether or not to launch a review, the Treasury would consider the inevitable element of added instability within the tax system alongside the fact that IHT is only a minor proportion of the UK’s total tax take. There may be bigger and easier fish to fry.”