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Why Hammond Is Right To Order Overhaul Of This Complex Tax

By newadmin / Published on Wednesday, 31 Jan 2018 17:54 PM / No Comments / 13 views


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Chancellor of the Exchequer Philip Hammond wants to ensure inheritance tax is “fit for purpose.” (Photo by Toby Melville – WPA Pool/Getty Images)

Philip Hammond, the Chancellor of the Exchequer, has ordered the Office of Tax Simplification (OTS) to look at inheritance tax, which he said was “particularly complex.”

In fact, the OTS will be instructed to ensure the inheritance tax system is actually “fit for purpose” and outline areas where it can be simplified.

The case for simplification

The Chancellor is not wrong; inheritance tax is ridiculously complex, and that complexity has only been added to in recent years.

As things stand, all individuals enjoy an inheritance tax allowance of £325,000. If their estate is worth less than this when they die, no tax is charged. However, if their estate is worth more, then 40% is charged on the sum above that allowance.

When you die, you can pass all of your tax-free allowance to your partner, which essentially means couples have a £650,000 inheritance tax allowance.

Things have got even more complicated now with the introduction of a residence nil rate band. This was introduced last year and means that if you die and pass your family home onto a direct descendant, you enjoy a further tax-free allowance. For this tax year that allowance is £100,000, but it is due to rise each year until 2020/21 when it will hit £175,000.

This new band means that couples could potentially leave estates worth £1 million to their loved ones after they die, without paying any inheritance tax.

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Chancellor of the Exchequer Philip Hammond wants to ensure inheritance tax is “fit for purpose.” (Photo by Toby Melville – WPA Pool/Getty Images)

Philip Hammond, the Chancellor of the Exchequer, has ordered the Office of Tax Simplification (OTS) to look at inheritance tax, which he said was “particularly complex.”

In fact, the OTS will be instructed to ensure the inheritance tax system is actually “fit for purpose” and outline areas where it can be simplified.

The case for simplification

The Chancellor is not wrong; inheritance tax is ridiculously complex, and that complexity has only been added to in recent years.

As things stand, all individuals enjoy an inheritance tax allowance of £325,000. If their estate is worth less than this when they die, no tax is charged. However, if their estate is worth more, then 40% is charged on the sum above that allowance.

When you die, you can pass all of your tax-free allowance to your partner, which essentially means couples have a £650,000 inheritance tax allowance.

Things have got even more complicated now with the introduction of a residence nil rate band. This was introduced last year and means that if you die and pass your family home onto a direct descendant, you enjoy a further tax-free allowance. For this tax year that allowance is £100,000, but it is due to rise each year until 2020/21 when it will hit £175,000.

This new band means that couples could potentially leave estates worth £1 million to their loved ones after they die, without paying any inheritance tax.

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