Hot Topics News Hot Topics Spotlight on inheritance tax Recent reports have suggested that the UK’s current inheritance tax (IHT) system is ‘unnecessarily complicated’, with one business group going so far as to suggest abolishing the tax altogether. Here, we provide an overview of the IHT system, outline some of the recent suggestions, and highlight ways in which you can help to minimise your liability to the tax.IHT is the tax payable on a deceased individual’s estate: in 2018/19, IHT is payable where a person’s wealth is in excess of £325,000 - otherwise known as the ‘nil-rate band’.IHT is currently charged at 40% on the proportion of the individual’s estate that exceeds the nil-rate band. Both the value of chargeable assets held at death and the value of chargeable lifetime gifts made within seven years of death are included within the estate.The Residence Nil-Rate Band (RNRB)On 6 April 2017, the RNRB came into effect, permitting some individuals to escape the IHT net.The RNRB applies where a residence is passed on death to a direct descendant, such as a child or a grandchild. For 2018/19, the RNRB is set at £125,000 and is set to rise annually thereafter, reaching £175,000 in 2020/21.The RNRB is in addition to an individual’s nil-rate band, and can only be used in regard to one residential property which has been, at some time, a residence of the deceased. The RNRB is tapered at a withdrawal rate of £1 for every £2 for estates with a net value of more than £2 million.Making the most of IHT reliefsPlanning to minimise your liability to IHT is crucial. Here, we explore some of the key areas to consider.Individuals may wish to make IHT-exempt transfers between themselves and their spouse. Such transfers are generally exempt from IHT, no matter whether they are made during a person’s lifetime or on death. Both the nil-rate band and the RNRB may be transferred between spouses and civil partners.Making lifetime gifts can also help to reduce the IHT liability on an individual’s estate. Provided that the person survives the gift by seven years and no longer benefits from it themselves, the gift will escape IHT.A ‘taper relief’ may also apply where lifetime gifts are made between three and seven years before death. However, this relief applies to the tax on the gift, as opposed to the gift itself.IHT reliefs on agricultural and business property also exist, which can help to take such property outside of the IHT net.Recent developmentsIn a recently published review, the Association of Accounting Technicians (AAT) stated that IHT is ‘unnecessarily complicated’ and ‘widely misunderstood’. The AAT called for several IHT exemptions to be abolished, including gifts on marriage and gifts to political parties, arguing that the general public are ‘largely unaware’ of these exemptions.Meanwhile, in a separate report, think tank the Resolution Foundation suggested that IHT should be abolished in its entirety, and replaced with a new ‘Lifetime Receipts Tax’. This would be set at a considerably lower rate than the current 40% standard rate of IHT, and would permit each individual to have a lifetime allowance of £125,000, after which tax would be payable at a rate of 20%, up to £500,000.As your accountants, we can help you to minimise the IHT due on your estate. The sooner you act, the better - please get in touch with us for further advice and support.