Inheritance Tax warning as thousands more middle earners may be forced to pay ‘hefty’ bill

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Inheritance tax: Financial advisor provides advice

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The IHT threshold has remained at £325,000 since 2009 despite house prices increasing at a rate of 4.3 percent each year since 2011, meaning that every year thousands more people are being asked to pay the 40 percent rate of IHT.

Commentators are saying that the frozen IHT threshold is indeed a tax in disguise by Chancellor Rishi Sunak and that the number of people forced to pay is expected to almost double in the next five years.

Laura Suter of AJ Bell said more middle earners will be hit with the death tax following the chancellor’s failure to raise the threshold.

“Inheritance tax is often seen as a tax only the wealthy pay.

“But with allowances frozen, more middle earners will quickly be dragged into the 40pc charge.”

She continued: “The move means that many who don’t think they will be hit by the death tax – and so won’t have organised their estate tax efficiently – will end up being faced with a hefty bill.

“The Government is the only one pleased with this move.

The amount it generates from inheritance tax has been climbing consistently in recent years and will gather pace in the next few years while allowances are frozen.”

The £325,000 IHT allowance has not risen since 2009, despite years of rising property prices and wage growth.

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At the same time more than half a million over 75s don’t have a will and four million don’t have a power of attorney in place according to latest figures.

This is according to statistics from retirement experts Just Group who are urging families to engage with estate planning sooner rather than later.

Stephen Lowe, group communications director at Just Group said: “At its simplest a will ensures that your estate is shared out as you would wish, not according to the rules of intestacy, and there can be financial benefits to planning in advance how and when to pass on inheritances.

“None of us likes to think about being so vulnerable and it’s tempting to think ‘it won’t happen to me’ or ‘I’ll deal with it later’.”

 He continued: “Sadly the data tells a different story.

“More than seven percent of people over the age of 65 have dementia and the risk of developing dementia rises to one in six over the age of 80.”

Anyone who wants to make sure their assets go to who they wish should make a will and think about appointing a power of attorney.

Meanwhile, law company Pinsent Masons believes that it’s likely HMRC will be focussing more on IHT claims in the future.

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A spokesman for the law company said: “Now that social distancing rules related to lockdown have eased and some of the burden on HMRC of administering furlough has subsided, the expectation is that we will see an increase in compliance activity.”

To legally reduce how much inheritance tax someone pays, property or assets can be given as gifts when the person is still alive.

People you give gifts to might still have to pay Inheritance Tax, but only if you give away more than £325,000 and die within seven years.

The Government website states: “Other reliefs, such as Business Relief, allow some assets to be passed on free of Inheritance Tax or with a reduced bill.”

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