Owen Jones says that inheritance should be taxed
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Families are paying more to the Government through Inheritance Tax, new data from HMRC shows, and according to analysis from national accountancy group UHY Hacker Young, rising property prices are at least partly to blame. As the value of a deceased’s home typically makes up the largest part of an estate, the rise in property prices has forced more families to pay up.
Additionally, the Government has “failed” to increase the tax-free allowance rate on IHT in line with inflation.
This rate has been frozen at £325,000 since April 2009 and if the allowance had risen in line with inflation, the threshold would be £439,000.
More and more estates are set to be hit by IHT, as Rishi Sunak plans to keep the level at which people start paying the tax frozen until at least 2026.
UHY Hacker Young also noted there is speculation the Treasury will increase IHT rates in the forthcoming budget.
This, it detailed, could be introduced as the Government looks to reduce borrowing following the pandemic.
Families may end up “forking out an ever-greater share of their inheritance to HMRC” and as such, Mark Giddens, a Partner at UHY Hacker Young, urged families to get on top of IHT rules.
“Inheritance Tax is becoming ever-more lucrative for HMRC, as the latest figures show,” he said.
“A tax that was originally supposed to affect only the super-rich is increasingly hitting middle England. As a result, families increasingly understand the importance of tax planning to ensure they can pass the fruits of their labour to their children.”
“The pandemic has led to record peacetime borrowing, and the Treasury will be looking to balance the books anyway it can.”
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How can you reduce your Inheritance Tax bill?
Depending on how an estate is managed however, some families may not need to pay any IHT to the Government, even where their estate is valued over £325,000.
If all the assets held above the £325,000 threshold is left to a spouse, civil partner, a charity or a community amateur sports club, no IHT will be levied.
Where a person decides to give away their home to their children or grandchildren, they can increase their threshold to £500,000.
Additionally, if a person is married or in a civil partnership and their estate is worth less than £325,000, any unused threshold can be added to their partner’s when they die.
This means their threshold could be as high as £1million.
On top of passing on property to partners and children, there are other options available to those who want to reduce their IHT bills.
According to Money Helper, the public advisory service, trying to reduce how much IHT is due on an estate is complicated but in short, it can be done by:
- Leaving a legacy to charity
- Putting your assets into a trust for your heirs
- Leaving your estate to your spouse or civil partner
- Paying into a pension instead of a savings account
- Regularly giving away up to £3,000 a year in gifts
If a person leaves at least 10 percent of their estate’s “net value” to a charity in their Will, the IHT levied on the remainder of their estate will be reduced to 36 percent.
Gifting during one’s life can also be an effective tool in reducing IHT bills. Some gifts, including property and wedding presents, are exempt from IHT calculations.
Tax relief may also be available on certain types of property, such as farms and business assets.
How is Inheritance Tax paid?
Where IHT is due, initial payments need to be paid by the end of the sixth month after the person died. This is important to note as HMRC will begin adding interest to the debt if it is not paid on time.
There are a number of ways in which an IHT bill can be paid. It can be covered by the estate’s own assets or from separate bank accounts via online or telephone banking, CHAPS or Bacs or physically through a bank or building society branch.
It is also possible to cover IHT bills through yearly instalments but to do this, affected payees will need to complete the IHT400 form which can be found on the Government’s website.
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