IHT simplification review – comment from Tilney

31 January 2018

The Chancellor yesterday announced he has asked the Office of Tax Simplification to conduct a major review of Inheritance tax (IHT) including looking at gifting allowances.

Ian Dyall, head of estate planning at Tilney, gives his views.

“I think of the three main personal taxes (Income Tax, Capital Gains Tax and IHT), for the average person the IHT is arguably simplest as it only impacts a minority of the public.  However, changes made in recent years have added complication.  The new residence nil rate band is unnecessarily complex, particularly its interaction with trusts and the rules which allow for downsizing of the property. Also, with the exception of the spouse exemption, for the first time the tax liability differs depending on who you leave your estate to e.g. child or grandchild vs nephew or niece which may people regard as unfair.

“While I welcome the principle of simplifying the IHT regime, I am also cautious about this announcement. ‘Simplification’ often is anything but as it inevitably leads to a new tax regime alongside the legacy regime (e.g. “Pension Simplification”) and often turns out to be a euphemism for revenue generation. The review should not turn out to be an endeavour to simply raise IHT revenues which have been steadily rising due to increased property prices and a fixed nil rate band.

“Lifetime gifts and inheritances have a really important part to play in addressing the growing generational wealth gap as a result of the consequences of student debt and the challenges young people face getting on the housing ladder. Rather than being used as a method to mitigate IHT, we are mostly seeing parents and grandparents use their gifting allowances to help young people combat the headwinds they are currently facing. While a recent study showed Millennials are likely to benefit from a coming inheritance bonanza from their baby boomer parents, this windfall will be decades down the line and therefore the younger generation is increasingly needing help in the here and now. The Government might want to consider a new exemption for any gifts made into Junior ISAs or specifically towards a deposit on a first property for a child or grandchild as a way of accelerating wealth transfers.

“If the Government really wants to simplify the regime, a quick win would be to scrap the residence nil rate band introduced by George Osborne, which is just too complex for people to really get to grips with. Instead they might apply a higher standard nil rate band – of up to £400k per person from April 2020, rather than the £1million per couple that would be available to some couples from 2020 under the existing rules, provided they don’t fall foul of copious qualifying rules – which would be fairer for everyone and much simpler. That would put some clear blue water between the Tories and Labour, who are rather enthusiastic about wealth taxes.”

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Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.