The Office of Tax Simplification (OTS) has issued their second report into the simplification of Inheritance Tax (IHT) following recent consultations.

The consultations revealed that “there are many areas where IHT is either poorly understood, counter-intuitive, requires substantial record keeping, creates distortions, or where the application of the law is simply unclear”.

The majority of the recommendations are intended to simplify IHT returns, especially where required in administering an estate, and would be beneficial for the majority of taxpayers.

However, one of the recommendations suggests removing the Capital Gains Tax uplift for assets transferred on death where IHT reliefs (such as spousal exemption, APR and BPR) have been claimed. This has been a useful planning tool to ensure that owners do not feel that they have to give away assets they need an income from too early. Removal of this provision could result in large Capital Gains arising if a gift or sale of the assets are required post death. It could also impinge on succession planning following an untimely death.

Another key recommendation is to bring the level of trading activity required to qualify for Business Property Relief in line with that required for gift holdover relief and Entrepreneurs’ Relief, which raises the threshold for trading activities from 50% to 80%.

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