Lifetime Inheritance Allowance (LIA): Example

If an estate worth £1.5m was divided equally between 10 people who had not inherited anything before, there would be no inheritance tax to pay. For example, this group of 10 people could include children, grand-children, friends and former employees. On the other hand, if a particular beneficiary had already used their Lifetime Inheritance Allowance, they would pay inheritance tax on their £150,000 share.

Inheritance Tax for businesses

The same principles will apply to the inheritance of a business - tax will be minimised if ownership is divided across a group of people who have not inherited much before. However, special measures will apply to help ensure that a business can continue to operate as a going-concern. For example, there will be an option to defer the payment of inheritance tax. In addition, a new owner will be able to avoid inheritance tax if they immediately pass the ownership to others (e.g. to children or company employees). Furthermore, restrictions on the sale of shares and on the disposal of specified assets will attract a degree of inheritance tax relief.

Introduction of Lifetime Inheritance Allowance: Transitional Arrangements

On introduction of the new inheritance tax, three bands will be used to describe current tax status – 'inherited more than £150,000' (pay full rate), 'inherited £75,000-£150,000' (qualify for a further £75,000 allowance) and 'inherited less than £75,000' (qualify for a full £150,000 allowance from this point forward). For simplicity, all previous gifts and inheritance would be counted at the face value on the date of receipt.

On a going basis everybody would have a lifetime inheritance allowance (LIA) of £150,000. The Inland Revenue would build a detailed picture of gifts, capital transfers and inheritance through i) annual tax returns, ii) wills and iii) declarations by beneficiaries.