Inheritance Tax  

Quilter calls for rethink of IHT nil rate band

Quilter calls for rethink of IHT nil rate band

The independent Office of Tax Simplification (OTS) has been told to get rid of the "complicated" residence nil rate band (RNRB) in its review of inheritance tax.

The OTS is currently reviewing submissions to a consultation into inheritance tax and expects to publish its report in Autumn 2018.

This follows a request from the Chancellor, Philip Hammond, who asked the OTS to determine whether there was an opportunity for simplifying the tax.

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The government's new nil rate band is set to give couples or civil partners a £1m allowance by 2020 and single taxpayers will have an allowance of £500,000, which will benefit their direct descendants when they inherit.

Rachael Griffin, tax and financial planning expert at Quilter, wrote an open letter to the chancellor in which she called for the RNRB to be removed and for the nil rate band to be increased to £1m.

Griffin said the RNRB has made inheritance tax even more complicated than it was before.

She also called for the small gifts allowance to be increased to align with the Junior Isa limit.

The letter stated: "The RNRB is well intentioned, but too complicated. The RNRB has been £325,000 since 2009. If it had tracked inflation it would stand at £414,000 in 2017, an increase of 27 per cent.

"The nil rate band should be increased to £1 million, updating it and removing the necessity for an overly complex RNRB."

She added: "Hitting the right balance of reducing tax liability while ensuring financial sustainability is no easy task. However, what cannot be forgotten is the inheritance tax system is incredibly complex and the addition of the residence nil rate band has added another variable to an already painfully challenging equation."

There is usually no inheritance tax to pay if the value of an estate is below the £325,000 threshold, or if it is left to a civil partner, spouse, a charity or community amateur sports club.

But the threshold is increased to £425,000 if the family home is left to children, upon a person’s death.

If a couple are married or in a civil partnership, and their estate is worth less than their threshold, then any remaining threshold can be added onto their partner’s threshold when the other dies, giving them as much as £850,000.

Ms Griffin wrote: "One of the reasons this allowance does not hit the Treasury’s balance sheet too heavily is because it is heavily restricted. For instance it omits the close to 6 million cohabiting couples. It is reassuring that the Treasury says all options are still on the table. There will be a price to pay for simplicity, but it’s value will be exponential."

The OTS held a consultation from April 2018 to June 2018, asking financial advisers, providers and consumers for their views on the tax.

The upcoming review is expected to look at the processes of filing returns and paying inheritance tax and will look at how the tax impacts the way in which people make decisions on transfers, investment and other transactions.