Inheritance tax set to DOUBLE. Death tax already costs families £210,000 – plan now

World News

Martin Lewis gives advice on investing inheritance

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Chancellor Rishi Sunak froze inheritance tax (IHT) tax for five years in his Budget in March, in a move that will steadily drag more middle income families into the net. The hated levy will cost Britons nearly £1 billion more by 2025/26, on top of the billions they already pay today.

Soaring house prices mean that more grieving families are set to face huge IHT bills, with the tax charge set at a punitive 40 percent.

Jacquetta Straker, independent financial adviser with Lycetts Financial Services, said: “As property and share prices continue to rise, IHT liabilities are increasing and more estates will get caught out”

The average bill for those who have to pay IHT has climbed six percent in a year to £210,000, according to latest figures from HM Revenue & Customs (HMRC).

This is only the start, Straker said. “The situation has been exacerbated by the Government’s decision to freeze the nil-rate band threshold until 2026.”

Sunak has frozen the nil-rate band at £325,000 until 2026. He also froze the main residence nil-rate threshold on family homes at £175,000.

As a result, the number of people paying the hated levy will more than double over the next five years.

By 2026, almost 50,000 estates will pay the tax every single year, up from 22,000 in the 2018/19 tax year, according to the Office for Budget Responsibility.

The OBR expects the total burden on bereaved families to hit £7.6 billion by 2026.

Do not sit idly by to discover how much your family is going to pay in IHT, Straker said. “Without proper planning the biggest beneficiary of your estate could be HMRC.”

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said there are plenty of ways to avoid paying more than your fair share.

Rather than leaving all your money to your family in your will, pass on some of it today. “Done properly, gifts can fall out of your estate for IHT purposes, and you get to see loved ones enjoy them while you’re still around,” she said.

Everyone can gift a maximum £3,000 to an individual with instant IHT exemption. Couples could therefore gift £6,000 this tax year. If they did not use last year’s allowance, they could gift another £6,000.

People can make gifts of up to £250 per person to as many people as they wish free of IHT, provided they have not used another exemption on the same person.

Seize lasting powers NOW – protect finances against dementia and Covid [GUIDE]
Five million pensioners on level annuities will see income ‘destroyed’ [WARNING]
Capital gains tax bills to more than DOUBLE – act now to save £50,000 [ANALYSIS]

Coles said gifts of up to £5,000 to a child who is getting married are IHT free. The maximum is £2,500 for grandchildren and £1,000 for anybody else.

“You can also make IHT-free gifts out of ‘normal’ income, provided they don’t affect your standard of living,” Coles added.

All other gifts are only completely free if you live for seven years, under potentially exempt transfer rules. The tax works on a sliding scale, falling to just eight percent after six years.

Straker said consider taking out a whole-of-life insurance policy, which involves paying a regular monthly sum into an insurance policy and using the tax-free payout to cover any IHT bill when you die.

“If you have previously taken out a whole-of-life policy make sure it will still pay enough to cover your bill.”

Almost three-quarters of people have not taken any steps to reduce their IHT liability, research from Canada Life shows.

Source: Read Full Article