Inheritance Tax Warning: Your Heirs May Face Additional Income Tax and CGT Charges Personal Finances | Finance
Inheritance tax is usually levied on inheritance when a person has died and passes the assets on. It is usually taken at 40% on parts of the estate valued above a threshold of £ 325,000.
This last point may be particularly important to note, as data recently released by the HMRC showed that the government collects more from the CGT.
Richard Jameson, partner of the Private Wealth team at Saffery Champness, commented: “These statistics may represent a turning point for the UK capital gains tax system in more than one way.
“First, the fact that in the current economic context, while government spending during the pandemic left a large hole in public finances that will ultimately have to be filled, the annual revenues of the CGT in 2019-2020 have increased by a modest 3%, half as much as the previous year.
“This may increase calls for a more drastic approach to taxing capital wealth – such as aligning CGT rates with income tax rates as recommended by the OTS in November, or under the form of a one-off wealth tax which was recommended by The Wealth Tax Commission in December.
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“But what is more, the statistics potentially offer a glimpse into the future of the CGT regime, not to mention other taxes, in the figures relating to the new 30-day declaration service for real estate transfers subject to the CGT, set up in April 2020.
“The 75,000 taxpayers who have signed, sealed and delivered over 80,000 returns to HMRC to declare over £ 1 billion in CGT liabilities may seem like a promising start for the new system, but underlying these numbers are found significant start-up issues that were highlighted in OTS’s second CGT report in May that recommended as a corrective measure to double the 30-day reporting window to reduce the administrative burden on people going through the process complex of sale of a property.
“Nonetheless, real-time reporting and shorter timeframes for tax payment are the clear direction of the journey as they have significant advantages from HMRC’s perspective in terms of reducing the tax gap and saving money. advance tax receipts, and asset owners will need to ensure diligent record keeping in order to meet new reporting requirements.
‘Statistics also show record amounts of earnings on which entrepreneurial aid has been claimed, likely reflecting the Chancellor’s decision in the March 2020 budget to reduce the lifetime allowance from £ 10million to 1 million pounds in earnings, prompting individuals to step up business assets. transfers to exceed them in the month preceding the entry into force of the modifications.
When the IHT is due, it must be paid by the end of the sixth month following the person’s death.
If it is not paid by then, HMRC will start adding interest to the debt.
The IHT can be paid from estate funds or money collected from the sale of assets.
However, Money Helper notes that in practice most IHTs are paid through the Direct Payment System (DPS).