The Office of Tax Simplification (OTS) recently closed its call for evidence on people’s experiences and perceptions of Inheritance Tax.
The consultation had been carried out in response to a request by the Chancellor of the Exchequer and the Financial Secretary to the Treasury that the OTS carry out a review of a range of aspects of Inheritance Tax (IHT) and how it functions today to identify simplification opportunities.
The review in particular looked at the existing legislative framework, and the administrative processes through which taxpayers interact with HMRC in relation to IHT.
The OTS is expected to publish its report in Autumn 2018.
Calls for Changes Regarding Cohabiting Couples
A number of organisations have published details of their responses to this consultation exercise, including Royal London, which has taken advantage of the opportunity to call for cohabiting couples to receive the same tax treatment as those who are married or in civil partnerships.
Royal London highlights that under the current IHT regime married couples and those in civil partnerships can:
- Pass their estate to one another tax free on death
- Transfer any unused part of their IHT nil rate band (currently worth £325,000) to one another on death
- Transfer any unused portion of the recently introduced residential nil rate band to one another on death
However, cohabiting couples are not able to benefit from these measures.
It also highlights that the number of cohabiting couples had grown significantly in recent years. There were an estimated 3.2m cohabiting couples in the UK in 2016, compared to around 1.5m in 1996. This suggests that while cohabitation has previously been seen as a precursor to marriage or civil partnership, it is increasingly being seen as an alternative.
Royal London acknowledges however that there would need to be safeguards in place to prevent fraud. Couples would need to present evidence that they had lived together for a certain amount of time - for example three years – before qualifying for the benefit.
“Cohabiting couples can remain together long term, raise children together and share assets,” explained Helen Morrissey, personal finance specialist at Royal London. “Many cohabiting couples believe that after a certain amount of time cohabitees achieve some kind of “common law marriage” status whereby they attain a similar level of rights to those who are married or in civil partnerships.”
“However, this is not the case and a surviving partner can find themselves with a sizeable IHT bill when their partner dies,” she added. “The time has come to bring these rules into the 21st century and recognise that not everyone wishes to marry.”
Protecting Legacy Giving
Charitable sector legacy consortium, Remember A Charity, also submitted a response to the consultation, in which it highlighted how important legacy income and IHT relief is to charities in the UK.
“Tax relief should not be considered purely as a saving for the consumer or a cost to Government, but as an opportunity to make a real difference to society for generations to come,” commented Rob Cope, Director of Remember A Charity. “The current inheritance tax framework encourages legacy giving and normalises conversation around what can still be seen by some as a taboo topic. While IHT may need review, it is essential that any changes will continue to support and encourage gifts in wills.”
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