Inheritance tax: Financial advisor provides advice
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Official figures released this week show that thousands more families will be forced to pay inheritance tax in the coming years than originally anticipated. The number of estates subjected to the death duty will reach close to 50,000 annually by 2026, more than double the number of people paying it prior to the pandemic. Just six months ago, the Office of Budget Responsibility said 36,000 people would be paying the 40 percent death duty by 2026. The inheritance tax burden on bereaved families is now expected to reach £7.6billion by 2026, up from the £6.6billion estimated in March.
While the wealth tax threshold has already been frozen at £325,000 until 2026, Nimesh Shah of Blick Rothenberg told Express.co.uk inheritance tax will be reformed in the future.
He said: “They have been talking about reforms to inheritance tax for a long time. They won’t change the rate, the rate is one of the highest in the world at 40 percent.
“What they could do is change the gifting regime. That is generous.
“They could introduce a lifetime gift allowance like in the US, so you give away a certain amount and anything over that you pay tax on.
“That would be unpopular with Tory voters, but I do think at some point we will see reforms to inheritance tax.
“The counter to that is inheritance tax still only accounts for so little, around 1.5 percent to 2 percent of total tax intake.
“Are you really going to solve the problem of more tax revenue through wealth taxes? No. Income tax, National Insurance and VAT account for 75 percent of total tax intake, so that’s where you want to pull your levers down if you want big wins for the Treasury.”
Inflation is on the rise as things stand, with the Chancellor warning it will average at four percent next year.
The Bank of England’s chief economist also said last week that inflation could soar to five percent in the near future.
This will drag more people into the inheritance tax net.
House prices have risen by 10 percent over the past 12 months, thanks to the Chancellor’s stamp duty holiday, which helped fuel a house-buying frenzy.
The £175,000 main residence “nil-rate band” – also called the family home allowance – which gives extra protections to those passing on their main home to a direct descendent, will also stay frozen until 2026 at the earliest.
Families paid £5.4billion in inheritance tax in 2020-21, a rise of £190million on the previous year and close to the highest death tax haul ever recorded, official figures showed.
In September, economist at the Institute of Economic Affairs, Julian Jessop, told Express.co.uk that inheritance tax should be abolished.
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He said: “I’m not a fan of inheritance tax because it isn’t obvious to me why someone should have to pay more tax because they have died.
“People should be free to build up assets and pay tax on the assets as they are going along, that’s fine. There might be a case for taxing the capital gains on your first home as well as your second home.
“The idea you should pay a tax bill because you have died, I don’t really see any justification for that.
“My personal view is that it should be abolished, I just don’t see what it is about dying that means you should pay tax. It doesn’t make an awful lot of sense to me.”
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