Inheritance tax breaks that allow a deduction from the value of an estate for liabilities owed by the deceased on death are to be restricted in response to avoidance schemes.
The changes will be introduced in the Finance Bill 2013 in response to avoidance schemes and arrangements which exploit the current rules that allow a deduction regardless of whether or not the liabilities are paid after death, or how the borrowed funds have been used, HMRC said.
The government also confirmed that the nil rate for inheritance tax, £325,000 will be frozen until 2019. Tax experts were disappointed.
Peter Goodman, Partner at Wilkins Kennedy LLP, said that the freeze will “hit middle England” hard by drawing more and more families into the inheritance tax net.
By 2018, the IHT threshold won’t have moved for almost a decade, Goodman said.
The government expects to earn an extra £270m from families as a result of this freeze, according to Goodman.
Stephen Herring, senior tax partner at BDO, said that inheritance tax is too complex and could be replaced with little impact upon the tax collected by the introduction of a CGT liability upon an individual’s death.