The Office of Tax Simplification (OTS) has published its second review on Inheritance Tax (IHT), which focuses on the residence nil-rate band, gift allowances and business and agricultural property reliefs.
In the report, entitled Simplifying the design of Inheritance Tax, the OTS points out that there are IHT reliefs for businesses and farms, and Business Property Relief (BPR) and agricultural property relief (APR) combined are worth more than £1 billion per year.
Moreover, it points out that Capital Gains Tax (CGT) does not apply to inherited goods from a person who has died, which means that a person can inherit something, sell it and make a gain, without having to pay tax. For this reason, some people wait to pass on assets, such as farms, which are exempt from IHT.
Therefore, the OTS would like to see the CGT rules changed so people inherit assets at the price paid by the deceased, which would mean that any gain from a subsequent sale would be subject to tax.
According to the review, “the main policy rationale is to prevent the sale or break up of businesses or farms to finance inheritance tax payments after the death of the owner.”
Under BPR, where an estate includes a business that qualifies for relief, BPR reduces the amount of the value of the business chargeable to IHT, either by 50 per cent or 100 per cent.
Meanwhile, APR of 100 per cent or 50 per cent is currently available on gifts of land, buildings and farmhouses occupied for the purposes of agriculture.