25 October 2018
Ordinary Families Hit by Inheritance Tax
The BBC highlighted yesterday that many ordinary families in the South West region have been hard hit by the inheritance tax (IHT). According to the government statistics, the total IHT receipts was £5.2bn in 2017/18 and has grown to become a significant source of income for HMRC, and a real burden for the ordinary families. On average those liable for IHT in the South West London paid over £390,000 each. [+ To read more]
Despite the spike in the value of property in the recent years, the nil-rate band has remained at £325,000, causing more families to be liable for the IHT. Although the residence nil rate band help to offset the effect of continued growth in asset prices, many families are still hard hit because of the complex and strict conditions attached to this additional allowance. Given the soaring property prices, IHT is no longer a tax on the wealthy.
IHT allowances - Nil Rate Bands
Generally IHT is only payable if the estate is worth at least £325,000. Married couple or civil partners can pass on their unused allowance to each other and therefore are not liable unless their estate is worth £650,000 or more.
In 2017, the government introduced an additional residence nil rate band which gives an extra £100,000 tax-free allowance for those passing their main home to their direct descendants. This is set to rise gradually to £175,000 by April 2020, meaning a married couple will be able to pass on £1 million to their children free of tax in some circumstances.
Budget 2018
Whilst we do not anticipate radical IHT reforms in the Budget, families could be hit by possible adjustments to tax relief on pensions. Some think-tanks proposed that people should pay tax on pension pots bequeathed after death. Current rules allow pension pots to be passed tax-free when the holder dies before the age of 75, and the Institute for Fiscal Studies (IFS) proposed charging both income tax and IHT on these funds.
Meanwhile, the Office for Tax Simplification (OTS) is looking at simplifying the IHT system, and is expected to report soon. This review was requested by the Chancellor and will look at IHT and all of its reliefs – including Agricultural Property Relief and Business Property Relief which can allow certain qualifying assets to be passed through generations without triggering IHT bills. It is unlikely that the Budget will make any radical changes to the IHT system before the OTS report is published.
How can we help?
Many would agree that IHT is a fiendishly complicated tax, feared by many and understood by few. Growing numbers of families need to think about IHT and how this might affect them. Good advice from estate planning experts is essential as there are some simple steps you can take to minimise your tax bill and to make it easier to pay any tax due.
If you are concerned about the amount of tax that may be payable on your estate when the time comes, our experts can provide you with independent advice and structure your affairs efficiently to reduce your IHT liabilities.
The above information is intended merely to highlight issues and not to be comprehensive, nor to provide advice. Should you have any questions on issues reported here or on other areas, please contact one of your regular contacts, or alternatively please contact enquiries@mytaxadviser.co.uk.
