QROPS offshore pensions may not be needed to protect pension funds from inheritance tax if
experts from a think-tank get their way.

A report from the influential Institute for Public Policy Research (IPPR) argues that inheritance
tax (IHT) is ineffective and unfair and should be scrapped for UK expats and taxpayers.

Instead, anyone gifting cash or assets valued at more than £150,000 should pay a gift tax.

Currently IHT is levied at 40% on all estates worth more than £325,000.

Assets left in trust like pension funds in a QROPS pension scheme, generally remain outside a
person’s estate for IHT purposes with the result no tax charged against them.

Under this new proposal, any cash or gift with a value between individuals worth more than
£150,000 would be subject to a gift tax.

The IPPR suggests this would stop the rich avoiding tax and give a fairer result for all taxpayers.

The suggestion is that the new gift tax is banded, so higher rates of tax are applied to larger gifts.

Gift tax should replace 40% inheritance tax

Gifts under £150,000 should be exempt from the new tax, says the IPPR, and then the banding should be applied as follows:

20% tax on gifts between £150,001 – £300,000
30% tax on gifts between £300,001 – £450,000
40% tax on gifts worth £450,001 or more

The think tank argues that scrapping IHT in favour of the new tax would increase the tax take
from £2.2 billion a year to £3.2 billion by charging tax at a fairer rate across more estates.

Many expats are liable to pay IHT on their estates because it is one of few taxes that is charged
in relation to an individual’s domicile rather than residence.

Domicile is largely decided by where a person is born or where his or her father was born.

If the proposal was adopted, it’s likely that the gift tax would fall in line with other capital taxes
– like capital gains tax.

This would result in a huge estate planning shake up as expats and other non-residents are
exempt from capital gains tax on disposal of their assets providing the disposal is made while
they are living permanently outside the UK.

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