Families trapped by inheritance tax as transport hits £ 6bn | United Kingdom | New
Owen Jones says inheritance should be taxed
A third more families have been trapped by a “death tax” trap, blamed by financial experts on the freezing of allocations by treasury chiefs as well as the increase in the death toll from the pandemic. Conservative MP Julian Knight said: âYou’ve paid taxes all of your life, so why does your estate pay taxes when you die? ” Inheritance tax levies are skyrocketing, with HMRC raking in Â£ 1.5bn in April, May and June alone – a hit and in June alone – Â£ 400m more than last year and an increase of more than a third.
If the quarterly rise continues, Inheritance Tax (IHT) revenues could easily surpass Â£ 6 billion this year, the highest to date, and continue to rise.
About 24,700 families pay the IHT in a typical year after the death of a loved one. But rising house prices and the impact of the pandemic – which would have hampered effective tax planning – are expected to result in a record 33,000 estates responsible for the burden this fiscal year.
Becky O’Connor, Head of Pensions and Savings at the Interactive Investor investment platform, said: âIHT bills are rising and the trend is not going to stop. This levy was introduced as a tax on the very rich, but it increasingly looks like a raid on the life savings of hard-working families.
âWorse yet, this wealth has already been taxed once – the moment it was earned. “
Joe Ventre, digital campaign manager at the TaxPayers’ Alliance, said many families were struggling: âThe low threshold means the levy is hitting the savings of hard-working households.
“Ministers should give grieving families a break by removing the death tax.” Meanwhile, Tory MP Julian Knight has said taxpayers must spit twice – during their lifetime and after death. He added: âIt always seems unfair and not conservative. Many people will feel that it is a blow to the country that so many areas are looted.
“We need to move to a much more fair and honest tax system that does not involve taxing the estates of the dead.”
Families have been trapped by a death tax
His colleague John Stevenson, of the all-party parliamentary group on inheritance rights and intergenerational equity, added: âIt is unfair that the overall burden falls on the middle part of society, rather than on the richest.
Alex Davies, managing director of tax specialist Wealth Club, said the rise in IHT bills is âa kick in the teeth. That you work hard, save hard, and pay taxes throughout your life to see almost half of what you’ve racked up taken back to the state seems grossly unfair to many.
Eugenia Campbell, an inheritance tax specialist at RSM consultants, said IHT’s share of total tax revenue was steadily increasing and Chancellor Rishi Sunak could use it to further increase his income.
She added: “Given the state of the government’s finances, a reform of the IHT regime aimed at further increasing tax levies cannot be completely ignored.”
The total bill will continue to skyrocket after the Chancellor froze allocations until 2026 in his March budget. This will drag more families into the net and is part of a larger tax attack, as it tries to recoup emergency spending from Covid.
Rishi Sunak could use tax to increase his income
Soaring house prices will increase the value of family properties and add to the windfall.
IHT is billed at a punitive rate of 40 percent, devastating family savings and reducing the amount people can pass on. The tax-free zero rate bracket has been frozen at Â£ 325,000 since 2009, but house prices and the value of investments have skyrocketed.
It will remain at that level until at least 2026, while the primary residence rate band is zero.
The transport of Â£ 5.4bn in 2020/21 is only Â£ 33m below the peak of 2018/19. Both are likely to be overwhelmed this exercise. The figure for the year up to April 6 is double the Â£ 2.7 billion HMRC took in 2010/11.
Olivia Kennedy, financial planner at Quilter, said “the IRS is winning” and the freeze on IHT bands attracts more taxpayers as asset prices rebound from pandemic lows.
She added: “It is vitally important that people have conversations with loved ones about estate planning.”
Comment from Finn Houlihan
The latest jump in inheritance tax revenue is significant but shouldn’t come as a total surprise.
With the government freezing the IHT’s zero rate bands until at least April 2026, bills were still going to rise, especially as house prices hit record highs.
However, it will be a wake-up call for many, who will want to take measures to protect their family heritage.
Real estate prices hit a record high
As advisers, we see first-hand how many people are simply unaware of the options available to reduce their exposure to IHT.
Unless people follow the right advice, they can end up with a higher than expected bill, usually when it’s too late to do anything.
With good planning, you could even reduce your liability to zero. There is a lot to do while staying within the law. Families are often happy to donate money to help children or grandchildren access homeownership or finance their education, removing assets from their estates.
Whole life insurance policies can also reduce liability while retaining assets in your name, or business property relief may work for those who invest in a qualifying business asset.
The sooner you start planning, the better – some solutions require people to live a certain number of years before an estate transfer becomes valid.
â¢ Finn Houlihan is Managing Director of the specialized tax consultancy firm ATC Tax.