Old Mutual Wealth has set out proposed changes to the inheritance tax nil-rate band and residence nil-rate band laid out in an open letter to Chancellor Philip Hammond.
In the letter, OMW trusts and technical solutions head Rachael Griffin says there are numerous legacy clauses and exemptions causing “havoc and confusion” for those looking to navigate inheritance tax.
Griffin says growing housing wealth makes the residence nil-rate band “too complicated” and it is limited in its use because it does not class nieces and nephews as direct decendents.
She says a more simple solution would be to raise the standard nil-rate band and remove the residence nil-rate band.
She says: “[The nil-rate band] has been £325,000 since 2009. If it had tracked inflation it would stand at £414,000 in 2017, an increase of 27 per cent. The nil-rate band should be increased to £1m updating it and removing the necessity for an overly complex residence nil-rate band.”
In a response, the Treasury says the current form of the nil-rate band and the residence nil-rate band, which was announced in the Summer Budget in 2015, “strikes the appropriate balance” between benefiting most families and stabilising public finances.
The Treasury response says: “If we had instead increased the existing threshold in line with inflation, many families would have lost out relative to the current proposals, which by 2020/21 will deliver an effective £1m inheritance tax threshold for many married couples and civil partners.”
Additional costs to the Treasury from increasing the threshold from £325,000 to £500,000 were also cited as a negative.
Griffin says the nil band rate is still overly-complicating the system.
She says: “The inheritance tax system is incredibly complex, and the addition of the residence nil rate band has added another variable to an already painfully challenging equation. One of the reasons this allowance does not hit the Treasury’s balance sheet too heavily is because it is heavily restricted. There will be a price to pay for simplicity, but it’s value will be exponential.”
There was no direct reply from the Treasury and the Office for Tax Simplification on Griffin’s other suggestions, including simplifying trust taxation and gifting, prioritising life assurance policies over whole of life insurance, and changing pensions rules to encourage life planning.
Griffin says: “Appropriate planning should not be penalised. In cases where a person dies within two years of making a pension transfer, knowing they were in ill-health at the time of making the transfer, HMRC designates ‘chargeable lifetime transfer’ and inheritance taxes may apply. This rule needs to be scrapped.”
The Office for Tax Simplification ran the consultation from 27 April to 8 June and is set to publish its report in Autumn.
Old Mutual Wealth changed its name to Quilter in March and formally listed on the London Stock Exchange in June, marking its separation from former parent Old Mutual.
The business’s subsidiaries will be rebranded to Quilter over a two-year period after the separation.