I’ve helped several clients with Inheritance Tax planning over the past year and 2015 will be no different. The Office of Budget Responsibility predicts it may affect 1 in 10 estates by 2019. It is considered by many to be an unjust tax and it is not just the wealthy that are affected by it. Property price inflation and the fact the nil rate band (the maximum value of your estate before being subject to inheritance tax) is only £325,000 (2014/2015), is often cited as a reason why it is so unfair. However when the current IHT Tax regime was introduced in 1986, the nil rate band was £71,000 and interestingly the increase to its current level, is actually broadly in line with the increases in property prices.
I’ve always thought it a very ‘politically affected’ tax, i.e. it has the potential for good headlines for a political party, but changes can be relatively inexpensive in terms of tax revenue. Relative to the big three taxes (income tax, national insurance and VAT), inheritance tax brings in a fraction of the revenue to HMRC; only about 2.5% of the amount raised by income tax. So in an election year, I would not be surprised to see at least some commentary about Inheritance Tax in the manifesto’s of the main political parties.
I often think it is best to tackle Inheritance tax over time, using a combination of solutions and annually reviewing your circumstances and the current HMRC rules. There are various allowances you can use, gifts you might make and reliefs you can utilise through investment. All of these can potentially reduce any tax liability. However what works for one person may not for another, so seeking advice is really important.
Some people are blissfully unaware of the inheritance tax burden their loved ones will face. However of those that have identified a problem, some think it is too great, they have left it too late or they are reluctant as “we might need the money for care fees, so giving it away is not an option”. The interesting thing is there are potential solutions in all of these cases.
So as we approach May 2015, we are all going to be exposed to a great deal of ‘political noise’ but perhaps announcements around inheritance tax is one ‘sound bite’ you might want to listen out for or seek help with!
Author: Phil James, Grosvenor Consultancy Ltd
There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested.
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