Reform IHT to pay for the cost of COVID-19, say inheritance planning professionals [
THE Chancellor of the Exchequer should scrap inheritance tax and replace it with a radical new alternative to raise more revenue and help pay for the cost of COVID-19 support measures. That is the conclusion of a survey of 500 professionals who advise families on inheritance planning, published on 17 March. Those surveyed included solicitors, tax advisors, financial planners and accountants. Over half (57%) of the professionals who took part in the survey by the Society of Trust and Estate Practitioners (STEP) support proposals by MPs for the current IHT regime to be replaced with a simpler flat rate, with far fewer reliefs and exemptions. That would greatly simplify the system, reduce avoidance and increase fairness for families. The respondents represent clients from all levels of the wealth scale, including middle-income families whose home is their main asset and therefore are affected particularly adversely by IHT. Overhauling IHT is more popular as a revenue raiser than either a one-off wealth tax or an annual wealth tax, with 36.2% of respondents favouring the IHT route while the other options are preferred by 29.04% and 12.88% respectively. A report last year from the All-Party Parliamentary Group (APPG) for Inheritance and Intergenerational Fairness called for the introduction of a ‘flat-rate gift tax’ to sweep aside the current IHT system’s Byzantine array of reliefs and exemptions. The proposals would tax all lifetime and death transfers of wealth, with very few reliefs and a low flat rate
of 10%, as opposed to the current rate of 40%. Rates would reach a maximum of 20% on estates of over £2m. The STEP survey found that 65% of inheritance advisors agree with the APPG recommendation of a 10% flat rate as the best way to simplify the IHT system and discourage avoidance by wealthier families. Just under half agreed that £2m is an appropriate threshold for estates to pay the higher rate, while 28% think it should be higher and 7.6% think it should be lower. Emily Deane, technical counsel at STEP, commented: “The current IHT system is complex, ineffective and unfair. A new system, like the one recommended by the APPG, is the preferred route the Chancellor should take to raise funds to pay for the cost of COVID-19 support and sort out an unjust tax. “A broadly-based, low-rate tax with few reliefs and exemptions is far preferable than a tax with a high headline rate that the well-advised can avoid by use of complex reliefs and exemptions. The flat rate proposed by the APPG would apply across the board and lead to less avoidance, while keeping the UK attractive for wealthier individuals.” John Stevenson MP, chair of the APPG for Inheritance and Intergenerational Fairness, said: “Our report in 2020 concluded that fundamental reform of IHT is badly needed. Reform would simplify the system, reduce red tape, be fairer and is likely to provide extra tax revenue. We call on the Chancellor to look at fundamental reform of this unpopular tax.” q
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