Inheritance Tax ‘Ripe for Reform’ as Justice Department Revises Estate Planning Rules | Personal Finances | Finance
Inheritance Tax (IHT) costs are often managed through wills that ensure that no more taxes are paid than necessary and that the assets are passed on to the intended beneficiaries. Wills can be drafted and processed through certain professionals, many of whom note that the government’s pandemic-themed changes have had limited impact.
Remote witnessing of wills is a useful option, but not a ‘game changer’
An investigation by the Law Society of England and Wales into whether or not to extend remote testifying of wills beyond January 2022 found that only a small proportion of lawyers have chosen to use it for their clients. Under current laws, the signature of two witnesses is required in the physical presence of the person making the will (the testator).
In July 2020, the government took steps to enable remote viewing of wills by video to meet demand and simplify will writing during the pandemic. The changes were retrospective from January 2020 and will remain in place for two years.
Going forward, the Justice Department will soon consider whether it will extend remote testifying of wills beyond January 2022. Law Society President Stephanie Boyce has indicated whether it is worth it.
She said: “We cautiously welcomed the legislation when it came into effect last year, as it could support people who wish to make a will when the physical presence of witnesses is not possible, provided that the government ensures that legislation is drafted to minimize unintended consequences and maintain the validity of wills.
The Law Society interviewed 630 lawyers to find out their views and experiences on using remote will testimony during the pandemic and the results showed that demand for the option is limited.
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The results showed that 95% of those surveyed wrote wills during closings, but only 14% of those surveyed used remote testimony.
Of these, the vast majority (78%) had a positive or neutral experience. 58% said they would use remote observation if it continued to be an option after the pandemic, 35% said they would not and 7% said they did not know.
About three-quarters (73%) of all respondents said they would not use remote testimony after the pandemic. They spoke of an increased risk of undue influence, future claims and said it was more difficult to assess their client’s ability to make decisions when the process was conducted remotely.
Ms. Boyce concluded, “While the availability of remote testimony has not dramatically changed the legal profession’s approach to will writing, it has proven to be a useful option in certain circumstances. Lawyers have continued to exercise the highest standards of professional judgment in deciding what is in the best interests of their clients.
“Therefore, the Law Society continues to believe that in the longer term, the most effective reform of the law would be to give judges the power to recognize the intentions of the deceased even if they have a will that cannot be -be not certified in accordance with the Wills Act so that their estate is inherited as they had planned.
“We look forward to the next report from the Wills Reform Law Commission, which is expected within the next two years and which we hope will expand on this and other issues to improve will drafting in England. and Wales. “
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Missed opportunity – Government rejects inheritance tax reforms
This investigation came just as the government chose not to change other areas of estate planning. This week, the government decided not to make any of the recommended changes to the IHT proposed by the Office of Tax Simplification, particularly with regard to donation allowances and the zero residence bracket (RNRB).
According to NFU Mutual’s analysis, this is a “missed opportunity” to simplify some rules and make the tax both fairer and easier to understand. Sean McCann, Certified Financial Planner at NFU Mutual, argued that the IHT is “unnecessarily complicated and ripe for reform.”
Currently, a number of gift options are available to taxpayers looking to lower or limit their IHT bills. This includes gifts for weddings, children and political parties.
However, Mr McCann warned that the rules on giveaways are often misunderstood and underused.
He continued: “There is currently a wide range of tax-free gift allowances that can be used, but many people are not familiar with them and, therefore, do not use them. The Office of Tax Simplification has recommended to replace them with an annual fee – a free gift allowance that would make IHT easier to understand and plan.
The government has also refused to change existing RNRB rules, which in turn excludes many Britons from tax benefits. Mr McCann concluded by explaining how these rules work and what could have been changed to make the system “fairer”.
He said: “The zero rate residential band – which allows individuals to leave up to £ 175,000 of the value of their home tax-free to a direct descendant – is another area of confusion. important, especially when someone downsizes or moves to a worrying residential area.
“The fact that it is only available to those with ‘direct descendants’ means that anyone without children cannot pass as much tax-free.
“Removing the zero rate bracket for residency and increasing the abatement from £ 325,000 to £ 500,000 for everyone would not only simplify the tax, but also make it fairer. “
Failure to act in these and other areas of IHT planning could cost the Britons dearly over the next few years, with the number of families paying IHT nearly doubling over the next five years. The predictions come as the British are already paying record amounts of IHT to HMRC.
At the end of November, the HMRC released statistics showing that £ 3.6bn had been paid to the government via IHT between April and October 2021. This was £ 600m more than in the same one-year period. earlier and thus takes the total paid in the year 2020/21. away to £ 5.4 billion.
IHT revenue has been growing steadily since at least 2021 and according to NFU Mutual, up to £ 7.6 billion could be paid to the state in 2026/27.
Additionally, the total amount of taxes paid to the government has skyrocketed in recent months and Myron Jobson, a personal finance activist at Interactive Investor, explained how the pandemic has impacted tax bills.
He said: “The IRS got exceptional transport in the first half of the fiscal year – but the numbers are heavily skewed by the pandemic as much of the economy shut down last year due to the restrictions. related to COVID-19.
“The increase in government IHT revenue seems unsavory in the context of the pandemic, and the freezing of zero rate and zero residence rates until at least April 2026 means these bills are expected to continue to rise and increasingly look like a raid on hard-working families (who were already taxed at the time of earnings), rather than the very wealthy it was originally intended for. “