Chancellor Jeremy Hunt has been urged to simplify the rules for inheritance tax allowances in a boost for many Britons.
Elisabeth Squires, director and solicitor at Britton and Time, said the tax could be eased by reducing the threshold for paying the tax or decreasing the tax rate.
She told Express.co.uk: “As it presently stands, the inheritance tax threshold (nil rate band) is £325,000 and it has been fixed at that amount since 2009.
“For any estates valued over this amount, the rate of taxation is fixed 40 percent. If this is replaced with a lower taxation rate, other difficult or confusing reliefs such as Agricultural Property Relief and Business Property Relief could be discarded completely, as well as the seven-year-rule for gifts, meaning the taxation rate could to around 10 percent without heavily impacting tax receipts.”
She said one move the Chancellor could look at is combining the residence nil rate band with the current standard nil rate, which would increase the allowance for many families.
Ms Squires said: “If the government were to abolish the residence nil rate band (RNRB) and just combine this threshold (£175,000) with the Nil Rate Band of £325,000, this could raise the IHT threshold to £500,000.
“By abandoning the RNRB allowance, a greater percentage of estates would benefit from the higher general threshold.
“The application of the RNRB is currently limited to people who own their property and leave that property to their lineal descendants so abolishing this would take out any difference in treatment between individuals who have decided to have children and those who have decided to remain childless.”
She said another option is to increase the annual gift-giving exemption to give families more leeway to reduce their inheritance tax liability.
Tom Adcock, tax partner at Gravita, said there will likely be reforms to inheritance tax soon. He said: “The fact that inheritance tax ultimately raises little revenue and is a permanently contentious issue means it is likely to be reformed before long.
“Potentially capital gains tax (CGT) could be seen as a fairer and less contentious substitute, or a new tax burden may be imposed elsewhere to fill the fiscal gap.
“CGT offers a practical solution that can be adjusted to handle factors such as exemptions, charges on cash, and its application to trusts, making it a viable replacement for IHT.
“In a broader sense, CGT embodies what IHT should aim to be. It’s a fair and more user-friendly system since it taxes everything based on its market value, making it less complex and easier for the government to manage.”
Nick Sinclair-Wilson, director of Client Services and chartered financial planner at BRI Wealth Management, said increasing the inheritance tax allowances was an “obvious route” to reform the policy.
He said: “Increasing the allowances would be an obvious route, as would simplifying the various gifting exemptions and allowances, such as merging the main residence nil-rate band with the nil-rate band.
“Given that nil-rate band in particular has remained unchanged since 2010, an inflationary or lump-sum increase may be appropriate and would help remove estates who are now getting caught by inheritance tax simply due to the increase in house prices over the period.”
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