Inheritance tax explained by Interactive Investor expert
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Inheritance tax receipts for April 2021 to November 2021 came to £4.1billion over the eight-month period – £600million higher than the same time frame in 2020. Between April and October this year, IHT receipts totalled £3.6billion – up from £3billion.
Overall, tax receipts for the period came to a staggering £448.1billion – £106.8billion higher than the same period last year, HM Revenue & Customs (HMRC) figures show.
However, comparisons between the previous year are not apt as receipts were impacted by the ongoing pandemic.
Following his March Budget earlier this year, Rishi Sunak made the decision to freeze the inheritance tax threshold for five years.
This move is believed to be a conscious effort by Mr Sunak to slowly pull more middle income families into the tax bracket as house prices and stock markets rise.
Julia Rosenbloom, a tax partner at Smith & Williamson, said today’s figures were an “early Christmas present” for the Chancellor, and explained why Mr Sunak’s fiscal agenda could benefit from this latest development.
She continued: “As if the need to pay for the ambitious spending commitments announced in the last Budget isn’t enough, the threat of Omicron could require the Treasury to find more money for compensating businesses if there is a need to shut down parts of the economy to slow the spread of the virus, and tax receipts could therefore be vital in the months ahead.
“If the uncertainty surrounding Omicron persists the Chancellor could be even more tempted to consider increasing personal taxes in the next Budget, the date of which is currently unknown but could come as early as the spring.”
The rise emphasises the need to carefully consider tax planning, Ms Rosenbloom said, urging people to make the most of current allowances in case other changes are introduced.
She said: “For those who haven’t yet finalised their Christmas shopping, making gifts is an option that may not only help reduce an IHT bill, but if you are giving to a charity you would also be supporting a cause that you really care about.”
Furthermore, the tax expert explained how ordinary people up and down the country could benefit from the gifting as a means of saving money on their inheritance tax.
She added: “Gifting to charities can provide relief which can reduce an individual’s income tax liability.
“Gifts to qualifying charities are also exempt from Inheritance Tax and if an individual leaves broadly 10 percent of their estate to charity in their Will, their estate would only suffer a 36 percent Inheritance Tax rate, rather than the usual 40 percent.
“Those feeling particularly generous could even consider setting up their own charitable trust, claiming appropriate tax reliefs so that as much as possible goes into the pockets of the charities.”
Inheritance tax usually has to be paid after someone’s death on some of the gifts (assets) they have handed over to loved ones.
Any gifts which are given less than seven years before you die may be taxed depending on who you give the gift to and their relationship to you.
Furthermore, the value of the gift and when the gift was given will also be taken into account when it comes to how it is taxed.
Anyone looking for advice on saving money on their IHT bill is encouraged to reach out to a professional financial advisor for guidance.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, also emphased the importance of financial planning this week.
She said: “As we head into the new year many of us will be looking to spring clean our finances and pensions are a key part of this. Even the smallest of changes can have a massive difference.
“Making a slight increase in pension contributions can really add up over time while tracking down a lost pension can potentially boost your retirement savings by thousands of pounds.
“Planning ahead can also save you and your loved ones from nasty surprises such as unexpected tax charges or even death benefits going to an ex-spouse rather than a current partner. Taking a bit of time to update your pension planning now can make a big difference in the long-term.”
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