The government is considering abolishing or "simplifying" some vital tax reliefs routinely used in estate planning.
The Treasury's Office of Tax Simplication has spent the past few weeks examining the hundreds of different reliefs and exemptions available to individuals under the UK's complex tax system, with a view to getting rid of some of them (see STEP news stories of 25 October and 8 November 2010).
But the originally stated aim of this exercise was to remove reliefs that were "largely historic, not frequently used, create distortions in the tax system or are complex for business or HMRC to administer".
On Monday a shortlist of prime candidates for abolition quietly appeared on the OTS website, along with a paper explain how the Treasury will make its decisions on each.
The most alarming item on the list is the inheritance tax relief granted to potentially exempt transfers (PETs), along with the associated seven-year taper rule (s.7 of IHTA 1984). This relief is of course very widely used in estate planning and is generally considered more of a right than a concession.
Another contentious inclusion is CGT relief for principal private residences. The OTS document contains a preliminary analysis of this relief and concludes that it should be retained, but with changes to the "last three years" provision (much used for "flipping").
Other measures being considered for abolition are CGT relief for venture capital trusts, enterprise investment schemes and entrepreneurs.
The OTS also issued a second list of reliefs that it will consider abolishing if it has time. This list is even more of a political minefield, including the GBP3,000 annual gift exemption from IHT; agricultural and business property relief; and IHT relief for various forms of trusts.
A final list of proposed abolitions and amendments will be submitted to the Chancellor ahead of Budget 2011.
Courtesy of STEP Newsletter 16.12.2010
Help and advice for solicitors dealing with probate, executry and taxation
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