Owen Jones says that inheritance should be taxed
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HMRC confirmed today that IHT receipts for April 2021 to July 2021 were £2.1billion. The Government also confirmed higher receipts over the last year or so are expected to be higher due to the impact of coronavirus, although this cannot be verified until full administrative data becomes available.
Julia Rosenbloom, a tax partner at Smith & Williamson, warned IHT is to become increasingly important for the state’s coffers and more families are expected to be hit by the tax.
Ms Rosenbloom said: “The recent run of increases to monthly IHT receipts means the tax is becoming an increasingly important revenue source for the Treasury.
“One of the key drivers for the uplift will no doubt be the announcement in this year’s Spring Budget that both the nil rate and residence nil rate bands are to be frozen until at least April 2026, resulting in increased IHT bills for families as more estates are brought into scope on the back of soaring property and share prices.
“As the Government continues to spend to help rebuild the country following the pandemic, as well as the need to fund other areas such as social care, it will no doubt be casting its net far and wide to boost its coffers.
“We still don’t know when the Chancellor will announce his next Budget, but whenever it takes place it is quite possible that personal taxes, including IHT and CGT, could be in for a massive overhaul given the amount they raise for the Treasury on an annual basis.
“Increases to IHT charges could affect many and some may need to go as far as selling family homes to pay their IHT bills. Starting tax planning as soon as possible will mean that people can make the most of their current allowances before any new reforms are introduced.
“I’d urge families to look carefully at the different options available, such as making gifts and investing tax-efficiently, which may help reduce or eliminate an IHT bill. Early planning will ensure you pass more assets on to your loved ones and causes you care about, rather than it going to HMRC.”
Sarah Coles, a personal finance analyst at Hargreaves Lansdown, also commented: “The record tax taken in July is likely to be a result of the horrible rise in deaths of people with coronavirus earlier this year.
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“There’s typically a long delay between when someone dies and when the tax is paid, which can take up to six months. It means that what we’re seeing now is a result of the tragically high death rate in early 2021.
“HMRC says it’s too early to say whether the higher death rate and higher tax take are linked, but given that the last peak in IHT was in October, six months after the first wave, we can see a possible link.
“Paying IHT comes at the worst possible time. Families are still reeling from bereavement when they have to go through the administrative nightmare of probate, and then work out how to pay the tax bill. The more you can plan for this tax in advance, the less pressure it will put on your family when the worst happens.
“You might, for example, give gifts during your lifetime. You have an annual gift allowance and can give gifts of any size, and as long as you live for seven years afterwards, they are counted as being out of your estate for IHT purposes. Alternatively, you could consider a whole of life policy written in trust, which will be paid outside of your estate and can be used to meet the cost of the tax.”
With IHT hitting more families, demand for guidance on how to reduce tax costs has shot up in recent months.
Andrew Aldridge, a Partner at Deepbridge Capital examined some of the options available to families: “Today’s data from HMRC showing an increasing uptake in receipts for inheritance tax highlights how easy it is for individuals and couples to generate a potentially large inheritance tax bill when they die, despite not being what they may perceive as ‘wealthy’.
“Despite the Openwork Partnership, one of the UK’s largest networks of financial advisers, report a 38 percent spike in demand for advice on IHT planning in the past year, with more than one in ten clients wanting to discuss it, these latest figures clearly show that many are still not seeking proper financial planning which can make it possible to pass on more of their wealth to their family.
“According to research undertaken in conjunction with the Deepbridge Estate Planning Service, the most commonly used IHT planning tool is gifting, considered for most or every client by 94 percent of financial advisers, followed by Business Relief, considered by 78 percent of advisers, ahead of trusts (73 percent) and life policies (67 percent).
“The research also showed 76 percent of IFAs believe that their use of Business Relief propositions will increase over the next two years, with less than two percent saying they saw their use of the tax break decreasing.”
Many fear that, despite Rishi Sunak’s promises, IHT could be targeted by the Government over the coming years to cover the costs of coronavirus.
However, David Gibb, a chartered financial planner at Quilter, noted this remains unlikely and other financial areas may be focused on.
Mr Gibb concluded: “The Chancellor’s subtle freeze on the nil rate band and the residence nil rate band at the last Budget is having the effect desired. It is dragging more and more people into paying IHT, particularly now asset prices have swelled in the past 12 months or so.
“But the numbers really have to be put in context. IHT generates around £5bn for the government each tax year, so tweaks around the edges aren’t really going to make a dent on the fiscal black hole. An extra £500m for the government’s coffers is really just a drop in the ocean. If the Chancellor wants to raise some serious cash post-pandemic, IHT is not the place to look.”
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