Inheritance tax could be due a major overhaul, with a new report recommending sweeping changes to gifting rules, life insurance policies and even who pays the bill.

After a request from the Chancellor of the Exchequer, the Office of Tax Simplification (OTS) conducted an extensive review into inheritance tax. Its new reports sets out clear recommendations for reforming the rules, which the government must now respond to. You won’t necessarily have to pay inheritance tax, as the first £325,000 of an estate is tax-free. And if your home passes to your child or grandchild, the estate can be worth up to £475,000 in 2019-20 before tax is payable. Indeed, last year just 24,500 estates were landed with a tax bill, accounting for around 4% of all deaths in the UK. Yet while the number of people affected is small, the bills can be enormous, with a tax charge of 40%. Whether you’re planning your legacy, or dealing with an inheritance, it’s vital to know how the rules work. Proposed changes include:

1. Shortening the time limit for taxable gifts
2. Changing who pays inheritance tax on gifts
3. Reforming IHT exemptions to gifts
4. Exempt all life insurance policies from inheritance tax
5. Remove the capital gains tax uplift
6. Review treatment of businesses and farms

BTL landlords at risk from HMRC crackdown

HMRC has been mailshotting thousands of UK landlords as part of its Let Property Campaign, suggesting it knows that they are not declaring the full tax they owe. Overseas landlords, many of whom are UK expats rather than wealthy foreign investors, are now coming forward in response to the campaign, which is designed to encourage landlords to voluntarily disclose to HMRC that they have not paid the full amount of tax on their rental income. Over the last tax year, 397 overseas-based buy-to-let landlords admitted to HMRC that they had not been paying the tax on their rental income, up 61% on the 246 that came forward in the previous year, according to accountants Moore Stephens. If landlords do not respond within 30 days of receiving a letter from HMRC, they are liable to face penalties based on what HMRC believes they owe, or even criminal investigations for non-compliance. HMRC is using its immense artificial intelligence (AI) database, Connect, to gather more information on landlords. Connect allows the tax authority to cross-check activity across innumerable information sources from property disclosures on tax returns to estate agents’ client lists and land registry data, as well as social media profiles and extraordinary spending patterns to identify instances of tax avoidance and evasion.

Mortgage rates to be slashed for green homes

Homeowners could reduce their mortgage rate, save money on their energy bills and reduce emissions from their homes under new government proposals. A £5m fund has been launched by the Department for Business, Energy and Industrial Strategy (BEIS) to the financial sector to increase the number of ‘green’ mortgages available. Households that successfully upgrade the energy rating of their home will be rewarded with access to discounted ‘green’ mortgage rates. The government has committed to producing net zero emissions by 2050, and essential to this will be improving the energy efficiency of the 17 million homes currently with an Energy Performance Certificate below band C. Currently, green mortgages favour homeowners in new properties who find it easier to make their homes more ‘green’. Older properties can be a challenge to make more environmentally friendly with homeowners unable to increase their rating sufficiently to make any meaningful savings on their mortgage. BEIS has said that a separate £10m innovation fund will be launched to help the industry find ways to retrofit older properties with environmentally friendly technology, with minimum disruption to homeowners. Green mortgages have been available for several years, but have not yet reached the ‘mainstream’, remaining a niche product. They tend to be available from smaller lenders such as the Ecology Building Society, which rewards customers with a 1% discount on their borrowing if it is used to make ‘green’ improvements such as having their loft insulated or solar panels installed. Barclays launched a green mortgage last year, but it is limited to giving buyers of new-build energy efficient homes access to lower interest rates and is not available to homeowners that improve the energy efficiency of their existing home. And BNP Paribas working in partnership with Eon are developing a green mortgage plan to enable homeowners to extend borrowing on their mortgages with a linked ‘energy efficient home improvement’ loan.

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