Graham Southorn shares inheritance tax tips
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Inheritance tax is the most unpopular charge in the UK, because it hits grieving families when they are down. The average bill is on course to top £266,000.
Another reason that families loathe this levy is that it is imposed on wealth that has already been taxed at least once.
It is also imposed at a punitive 40 percent on any assets that fall above nil-rate IHT thresholds, including the family home.
As if that wasn’t enough, the super-rich often escape via careful planning, while ordinary Britons are getting caught as house prices rise.
Inheritance tax is also highly complicated, which makes planning torturous and mistakes easy.
Hopes that the Office of Tax Simplification would tidy the whole thing up in 2019 were dashed as it only tinkered.
When Prime Minister Liz Truss and her former Chancellor Kwasi Kwarteng embarked on their tax-cutting spree there were genuine hopes that IHT would be eased or abolished altogether.
In fact, during her paying for the Conservative Party leadership, one of her major campaign donors called for exactly that to happen.
Treasury Minister Andrew Griffith said Truss and Kwarteng would like to abolish inheritance tax to encourage wealth creation, and he urged them to follow through. Other top Tories also called for it to be axed.
After the backlash against Kwarteng’s disastrous mini-budget, which was seen as favouring the rich, there is no way that will happen now.
Newly appointed Chancellor Jeremy Hunt warned yesterday that he will have to take “decisions of eye-watering difficulty”.
This could include measures such as imposing a windfall tax on energy companies or scrapping the State Pension triple lock, as we revealed yesterday.
That has completely changed the outlook for inheritance tax, too, said Alex Davies, chief executive of financial advisers the Wealth Club.
“Following Jeremy Hunt’s comments there is absolutely no way that inheritance tax will be reduced or abolished in the near future.
“HMRC generated £6.1billion last year from this most hated of taxes, making it a real cash cow.”
Davies issued a chilling warning: “We predict the average bill will increase to £266,000 within the next couple of years.”
He said there are lots of perfectly legitimate ways you can reduce or eliminate IHT bills. “I would urge anyone affected to look at all of them very closely.”
Stevie Heafford, tax partner at HW Fisher, agreed that IHT reform is now off the table. “Government debt is close to £2.4trillion and to truly tackle this, tax increases look inevitable as Hunt seeks to rebalance the books.”
Inheritance tax is charged on assets worth more than £325,000 on death, although married couples can inherit each other’s allowance.
The IHT nil-rate band was set in 2009 and has not increased since, even though house prices and stock markets have grown rapidly in that time.
Former Chancellor Rishi Sunak froze it at £325,000 until at least 2026, dragging yet more families into the net.
There is a further £175,000 allowance for families who pass on their main residence to direct descendants such as children and grandchildren.
That has also been frozen.
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David Denton, technical consultant at Quilter Cheviot, said Hunt’s tough plans have destroyed hopes of reform. “The last thing the Chancellor will be considering is scrapping a tax that is becoming steadily more lucrative for the Treasury.”
Denton says the IHT take continues to climb, with receipts totalling £2.9 billion between April and August.
That is £300million more than the same period one year earlier. “More and more people are now being caught in the IHT net, partly as a result of soaring property prices.
“The fact the Nil Rate Band and the Residence Nil Rate Band will remain frozen until 2026 is doing little to help.”
Denton added: “As a result, many families who might not class themselves as wealthy will find themselves having to pay IHT due to the rising value of their homes.”
Families must plan sooner rather than later to mitigate bills.
“Seeking professional financial advice where possible should ensure you don’t give more of your hard-earned money to the taxman than is necessary,” Denton said.
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