Whatever your media palate, social or otherwise, there’s been a fair bit in the various outlets recently on proposed changes to inheritance tax (IHT). Let’s get something clear to begin with, there are no proposed changes, there’s just talk.
Curiously, despite all it’s furore, statistics suggest (depending on what you read) that only around 4% of estates pay IHT. On top of that, as long as you’re married or in a civil partnership, and agree to live until 2020, you can give up to £1m to your kids tax free. Oh, that’s subject to you leaving them your family home, or the proceeds in it. Yes that might sound a bit like hoop jumping, but this is the tax man and he isn’t going to make things easy for you.
What you can do though is get planning as quickly as possible. Leaving things like IHT planning until you’re on death’s door might turn out to be your costliest procrastination yet, but even then there are still things you can do to mitigate a huge bill as Kenn Dodd demonstrated by marrying his partner of 40 years, Anne Jones, just a couple of days before he tickled his way through the Pearly Gates. Dodd had a last laugh that would have had the Diddy Men chuckling and wiped out an estimated £2m bill that would have been due under the current rules, if he and Anne Jones had remained unmarried.
The Resolution Foundation argues that the current system should be scrapped and replaced with a levy, interestingly called a Lifetime Receipts Tax, where everyone can receive up to £125,000 with tax rates of 20% up to £500,000 and 30% after that. While pondering whether or not their suggested system would work I found my mind wandering on to matters far more serious, like the weather, as soon as I saw that some of their dialogue included absurd, radical, tree hugging twaddle (for the record, I love trees) such as the current system being a ‘voluntary tax’ and that the rules are easy for the ‘super rich and well advised’ to avoid. What utter tosh. Firstly, inheritance tax is no more voluntary than say income tax, and to suggest that it is so is akin to suggesting that a self-employed person shouldn’t hire an accountant to apply any legal tax reliefs that are available.
Secondly, it’s not just the super rich that are well advised. Good advice is available to everyone, and the cost of that advice is relative. The more you have therefore, it seems probable that the advice may cost you more, and that’s because your affairs are likely to be more complex than us average mere mortals. So enough about that.
What I do think ought to change is the ceiling on the current allowances. For example, the annual gifting allowance of £3,000 hasn’t changed in nearly 4 decades and should be somewhere closer to £10,000 had it increased in line with inflation. Certainly the new Residence Nil Rate band has gone a little way to increasing the inheritance tax free amount you can leave to your loved ones, but that’s a long way short of bringing inheritance tax into the 21st century. Head of Burlington Wealth Management, George Ttouli, berates the stagnant nil rate band, unchanged from £325,000 since 2009, and says that the surge on residential property prices as well as the strong recovery in other asset values has caught more households in the IHT net. Compelling evidence of that can be found at the doorstep of The Office for Budget Responsibility reporting that housing assets now account for around half the value of estates notified for probate.
So, whilst the talk may continue around inheritance tax reform, don’t hold your breath waiting for changes to come in any time soon. And, when they do come in, I wouldn’t bother holding it a little longer expecting it to be straightforward. Tax is complex, and yes inheritance tax might be unfair, but so is the fact that I’m not a billionaire Formula 1 driver, but I’m not. I did something about that, I bought a TV and subscribed to Sky Sports. Do something about planning for inheritance tax now and give me a call.
This information provided in this article is not intended to constitute legal advice and each relationship breakdown requires careful consideration in our view by a fully qualified Solicitor before decisions are made and before you embark on a certain course of action.
Penn Chambers Solicitors
0207 183 1485