Inheritance Tax
Rates
Rates of tax remain unchanged at 40% (death transfers) and 20% (lifetime chargeable transfers). The nil rate band of £325,000, which was previously frozen until 2015, will now not increase until April 2018 at the earliest. This will gradually increase the amount collected and the number of estates liable to IHT, estimated at 17,000 in 2010/11 and 22,000 in 2017/18. The measure is intended to offset the cost to the state of capping the amount of domestic care that elderly people will have to pay for themselves.
Foreign domiciled people
Transfers between husbands and wives and registered civil partners are generally exempt from IHT without limit. However, there is a lifetime limit where the recipient is domiciled outside the UK and the transferor is UK-domiciled. Since the 1980s, this limit has been £55,000; as announced last year, it will be increased to £325,000 for transfers taking place on or after 6 April 2013. In future, it will be aligned with the nil rate band, which means it will not change again until 2018.
It will also be possible for non-UK domiciled people to choose to be treated as UK-domiciled for IHT purposes. This will enable them to enjoy the unlimited exemption at the time, but will restrict the tax advantages they might otherwise enjoy later.
Anti-avoidance
A new anti-avoidance rule is introduced to counter an avoidance scheme which involves the deduction of liabilities from a chargeable estate. It has been possible to increase the benefit of a deduction by using borrowings to buy assets that are excluded from the charge to IHT, or which are subject to a 100% relief; and HMRC believe that liabilities are sometimes deducted without ever being paid to the creditor. New rules will prevent the deduction of such liabilities after Royal Assent to the Finance Act 2013.