Welcome Changes to IHT and Capital Gains Tax
Simplifying the tax UK system has got to be a move in the right direction and for my money is long overdue.
The latest news from The Office of Tax Simplification (OTS), the independent Government advisory body, is the proposed reform of Inheritance Tax (IHT) and part of this, its interaction with Capital Gains Tax.
Currently, any asset held on death, benefits from an uplift in its value to market value, meaning that if it is sold after this date by the estate or the beneficiaries, they are able to use the market value at the date of death as the base cost. This can significantly reduce or eliminate any Capital Gains Tax liability.
This favourable capital gains tax treatment is logical where the asset is subject to IHT at 40%, but not where the asset has benefited from an IHT free uplift in value.
The report recommends a new approach to holding assets to remove the incentive to hold them until death. If the proposal goes ahead, the OTS recommends the asset passes at its historic base cost to the beneficiary. If the investment or business is sold, the beneficiary would generate the same gain as if the asset had been sold by the deceased.
Other key changes are:
- allocating the nil rate band on gifts across all gifts brought into the IHT account and placing the tax charge on the estate
- streamlining tests for businesses and furnished holiday lets across IHT, income tax and capital gains tax
- reviewing pre-owned asset tax to lessen confusion
- reducing the number of years a gift is ‘noted’ for IHT purposes from seven to five
- simplifying some of the gift exemptions to a single personal gift allowance, to be set at a higher rate.
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To learn more about the changes to IHT go to http://bit.ly/2MF4U6o