Inheritance tax: the best advice from an expert on how savers could benefit from ‘£ 18,000’ tax relief | Personal Finances | Finance
Some experts have warned that many could be affected by an increase in wealth tax bills due to government policy as the UK economy recovers from the pandemic. In the March budget, Chancellor of the Exchequer, Rishi Sunak, froze the threshold for inheritance tax at £ 325,000, a policy that will be in place until 2026. Families paid £ 5.4 billion inheritance tax in 2020-2021, an increase of 190 million pounds over the previous year and close to the highest death tax on record, according to official figures. As the Treasury continues to harvest more from inheritance tax and capital gains taxes, experts have warned that wealth levies could be increased to bolster public finances.
Richard Bull of Crowe, a tax firm, told The Telegraph last month: “More families will be forced to pay inheritance tax in the future as asset growth continues while tax breaks are largely frozen.
However, experts have given savers advice on how to mitigate any wealth tax hit, including advice that could lead to a tax break of £ 18,000.
One advice suggested by experts is to ask for increased protection against pension taxes.
Pension savings are exempt from inheritance tax, but beneficiaries of an estate may be subject to 25% tax if they exceed the lifetime retirement allowance of £ 1.07 million.
The lifetime allowance has also been frozen by Mr Sunak, meaning more and more people will see their pots exceed the threshold in the years to come.
Raymond James’ Andy Butcher suggests asking for “fixed protection” – this allows people who have been worse off by the threshold freeze to claim their old allowance.
This could result in £ 18,000 in additional tax relief, the Telegraph reported.
Mr Butcher added: “This can be useful in the event that a person dies with a pension which has increased dramatically in recent years and has unknowingly exceeded their available lifetime allowance.”
Another way to relax the bill is to use an “amendment deed,” which can help savers by essentially allowing families to rewrite the deceased’s will within two years of death and redistribute their estate from a way that less tax.
The legal document can also be used to reduce future tax bills, as explained by Mr. Butcher of Raymond James, a consulting firm.
He said: “If a person dies and leaves their estate to their spouse, the surviving spouse’s estate will be assessed for inheritance tax purposes upon their subsequent death.
“Using a deed to misappropriate part of the inheritance, say £ 325,000, in a trust will reduce the estate of the surviving spouse.”
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He added: “The spouse can also be a beneficiary of the trust. This allows them to borrow money from the trust when needed rather than withdrawing capital or income.
“They could even pay interest to the trust, further reducing their estate and future taxes. It also ensures that any future growth in trust assets does not fall under the taxable estate. “
Another potential avenue to lower your bill is an inheritance tax refund claim, which you may be entitled to if the assets used to assess your estate subsequently lose value.
Gary Coogan of NFU Mutual said this needs to be proactively claimed and many people are unaware that they are eligible for a refund.
He suggested to those who think they might be accepted for a refund to seek advice and “don’t miss out.”
Inheritance tax is one of the most controversial financial issues in the UK, as the recent debate over how to pay for the pandemic has highlighted.
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Prominent Labor Party figures including Greater Manchester Mayor Andy Burnham have called for an increase in wealth taxes to pay for the pandemic instead of the increase in national insurance, which was announced earlier this month- this.
But Julian Jessop of the Institute of Economic Affairs told Express.co.uk that inheritance tax “doesn’t make sense.”
He said: “I am not a fan of inheritance tax because it is not clear to me why someone should pay more taxes because they have passed away.
“People should be free to build assets and pay taxes on assets as they go along, that’s fine. It might be justified to tax capital gains on your first. home as well as on your second home.
“The idea that you had to pay a tax bill because you died, I really don’t see any justification for that.
“My personal point of view is that it should be done away with, I just don’t see what it’s like to die that means you should be paying taxes. It doesn’t make a lot of sense to me.”