Any such change could impact investors’ existing portfolios - another reason why it is important potential investors select a well-established and proven BR provider who is able to work with these changes.
Since the nil rate band has been stubbornly stuck at £325,000 for more than a decade, anyone with an estate exceeding that figure could be liable for IHT.
In response, the government introduced the Residence Nil Rate Band (RNRB), which allows homeowners an additional £150,000 before they are subject to IHT.
From April next year it will be at the full rate of £175,000 per person.
This is a useful additional allowance given that it has been increasingly difficult to engage in IHT planning with the main residence.
However there are restrictions to who can benefit from RNRB; the estate must be left to direct descendants and if the value of the estate is over £2 million then the additional allowance is tapered.
Married couples leaving their assets to each other may transfer the RNRB to the surviving spouse allowing them to use up to twice the tax-free amounts available to a single individual.
The OTS describes the RNRB as ‘one of the most complex areas of inheritance tax’ and one that is in desperate need of a rethink.
Yet, since it is so new the government needs more time before it considers an update. In the meantime, the RNRB remains a useful - if somewhat complicated – way to manage IHT.
Long-term savings
Unlike ISAs and other long-term savings which are liable to IHT, flexible pensions are a tax efficient way of passing money down through the generations.
If the pension scheme member dies before age 75, their nominated beneficiaries will not have to pay any tax on withdrawals, whether as an income or lump sum.
If the pension member dies after age 75, pension assets become taxable at the marginal rate of income tax of the recipient.
Since 2015, freedom and choice legislation has made it easier for defined contribution pension savers to access their money from age 55, adding greater flexibility but also additional complexity.
However, pension restrictions introduced in 2016 have imposed a lifetime allowance, limiting the pension pot size to just over £1m, meaning some wealthy investors need to seek alternative solutions to pass on assets tax efficiently to beneficiaries.
While Isa holdings still form part of the taxable estate for IHT purposes, a surviving spouse or civil partner can inherit Isa funds from their deceased partner or make an additional Isa subscription up to the value of their deceased partner’s Isa holdings.
It is possible to invest Isa funds in AIM-listed companies that can qualify for 100 per cent BR relief after two years of ownership.
