ATT Budget Representation - IHT Simplification
The ATT has submitted a representation for Autumn Budget 2025 with some suggestions for the simplification of Inheritance Tax.
Our first recommendation is that the draft legislation for the proposed £1 million allowance for 100% Agricultural Property Relief (APR) and Business Property Relief (BPR) from April 2026 is amended to make the allowance transferable between spouses, in common with the existing Nil Rate Band (NRB) and Residential Nil Rate Band (RNRB). Without this change, many small business owners and farmers will be forced into using more complex planning, often involving trusts, to ensure that their allowances are not wasted.
In addition, provision should also be made for the £1 million 100% APR/BPR allowance to be uplifted for individuals whose spouses die before 6 April 2026. Without this, widows and widowers will be unduly affected when the rules take effect as they will only have one allowance, compared to the two allowances that would have been available had their spouse or civil partner lived. A similar approach was taken on the introduction of the RNRB, where bereaved spouses and civil partners were given some uplift to their own RNRB to reflect an element of the entitlement they could have inherited, had their spouse or civil partner not died before the RNRB was introduced.
Finally, while it would come at a cost, we consider that IHT could be both simplified and made fairer by merging the RNRB and NRB into a single nil rate band. The creation of the RNRB has introduced substantial complexity into the administration of IHT. The provisions are not clear or easy to understand. The RNRB creates distortions, as two estates of equal value can have different IHT liabilities depending on the value of residential property held by the deceased and whether or not they have children who are inheriting that property. As further changes bring unused pension assets and death benefits into scope from April 2027, many more families will find themselves having to grapple with the complex provisions of the RNRB and it would be much simpler if there was a single, enhanced NRB instead.