Owen Jones says that inheritance should be taxed
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HMRC released Inheritance tax (IHT) statistics on December 21 and the data showed £4.1billion was paid to the Government through the levy between April and November, an increase of £600million when compared to the same period in 2020. IHT is only levied on relatively large estates worth over £325,000 but as property values rise, more families will fall into the taxes remit.
Liz Ritchie, a Partner at Mazars, explained: “IHT receipts ramping up through the second part of 2021 comes with little surprise.
“With a frozen threshold and surging house prices, HMRC will be satisfied to be adding to the relatively small amounts inheritance tax raises for its pockets.
“And we can expect to see this soar further in the coming years as thousands more homeowners are dragged into paying tax on their estates.
“Reports predict that by 2024 average property values could be 13.5 percent higher than they are today.
“By 2026, the OBR suggests that towards 50,000 estates will be subject to inheritance tax.”
Fortunately, there are certain actions people can take to reduce how much is paid in IHT.
Ms Ritchie continued: “With the tax likely to catch more and more people out, it’s important people invest their other assets tax-efficiently and consider options such as gifting.
“Something that isn’t always maximised by families.
“This can ensure that more of people’s assets are passed to loved ones or onto charitable causes, rather than into the Treasury’s money pot.”
Julia Rosenbloom, a tax partner at Smith & Williamson, expanded on this, noting gifting will likely prove important over the coming years as the Government may focus on changing tax rules as coronavirus costs mount.
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She said: “If the uncertainty surrounding Omicron persists the Chancellor could be even more tempted to consider increasing personal taxes in the next Budget, the date of which is currently unknown but could come as early as the spring.
“People should continue to carefully consider their tax planning and make the most of current allowances before any further possible changes are introduced.
“For those who haven’t yet finalised their Christmas shopping, making gifts is an option that may not only help reduce an IHT bill, but if you are giving to a charity you would also be supporting a cause that you really care about.
“Gifting to charities can provide relief which can reduce an individual’s income tax liability.
“Gifts to qualifying charities are also exempt from inheritance tax and if an individual leaves broadly 10 percent of their estate to charity in their Will, their estate would only suffer a 36 percent inheritance tax rate, rather than the usual 40 percent.
“Those feeling particularly generous could even consider setting up their own charitable trust, claiming appropriate tax reliefs so that as much as possible goes into the pockets of the charities.”
HMRC notes some gifts are exempt from IHT, especially those made more than seven years before the person died, but not all gifts are exempt.
Most gifts a person makes during their lifetime, except gifts covered by an exemption, are called potentially exempt transfers. This is because a gift is exempt from IHT if the person survives for seven years after giving it.
A gift can be money, property, possessions or anything that has value. A gift must reduce the value of the estate and the person involved must include any loss incurred as part of the gift.
For example, if a person sells their house to a child for less than it’s worth, the difference in value counts as a gift.
An outright gift is where value is transferred to another individual without conditions. Some exceptions to this include trusts, gifts where the person retains an interest or pre-owned assets
Money Helper, the public advisory service, warned trying to reduce how much IHT is due on an estate can be complicated. But, on top of giving gifts, Britons may be able to lower their bill by putting their assets into a trust for their heirs, leaving their estate to a spouse or civil partner or paying into a pension instead of a savings account.
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