Scottish Equitable has warned of possible changes to the UK's inheritance tax system likely to be an...
Scottish Equitable has warned of possible changes to the UK's inheritance tax system likely to be announced in the Chancellor's autumn statement.
These include the abolition of potentially exempt transfers rules (Pets) and the tightening of rules surrounding non-domiciled UK residents,
Margaret Jago, technical manager at Scottish Equitable, said: 'There are a number of areas in the existing inheritance tax system which may be vulnerable to reform. The most frequently discussed is Pets. Abolishing Pets would close down a significant loophole in terms of inheritance tax avoidance but would also limit the scope of many existing retail trust and bond products, which rely on this mechanism to mitigate inheritance tax. In view of this, it makes sense to ensure that clients use up their existing IHT relief in the meantime.'
She continued: 'Another aspect of the system which may be up for reform is the current situation whereby the UK is something of a tax haven for individuals resident in the UK but who may be domiciled elsewhere. Assets they own located outside the UK do not currently fall into the inheritance tax (IHT) net.'
The most likely change is that the rules governing trusts for these individuals will be changed. Alternatively, a more radical reform of IHT could base this tax not on domicile but on residence. In either case, swift action by intermediaries now could protect their non-domiciled clients, she said.
'Another area which may change is the nil rate band,' Jago said. 'Although in the past few years, the nil rate band threshold, currently £242,000, has been raised in line with inflation, it has not taken account of rising property prices and so the number of people in the IHT net has risen.
'There is the likelihood that the nil rate band threshold will be raised. Even so, many clients with substantial property and a portfolio of investments will still be affected. Intermediariess still have a role to play in raising awareness and ensuring their clients, particularly high net worth clients, make the necessary provision for their future.'
Scottish Equitable will be providing an IHT business development pack to advisers following the Chancellor's statement.
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