Why Rishi Sunak Won’t Reform Inheritance Tax In Budget – But Housing Tax Could Rise


JEFF PRESTRIGE: There’s a £ 2.7bn reason why Rishi Sunak won’t reform inheritance tax in the budget … but municipal tax and alcohol tax could rise further

With heavy tax hikes already scheduled for the spring of next year, Rishi Sunak’s budget is unlikely to contain any nasty surprises in ten days.

But don’t rule out further tax hikes as the Chancellor tries to fix government finances, battered by the pandemic and lockdowns.

While spending cuts in departmental government budgets are more likely – a point made last week by the influential Institute for Fiscal Studies (IFS) which suggested they could total £ 2 billion – households could be even tighter by Sunak.

In addition to the 1.25% hike in national insurance contribution rates and higher taxes on dividend income, larger municipal tax bills are eagerly awaited – perhaps up to 5% more from next April.

Money drawer: A tax ripe for reform, but unlikely to be affected by Rishi Sunak, is the inheritance tax. The tax brought the Treasury £ 2.7 billion between April and August

Alcohol taxes could also increase while graduates could be required to start repaying student loans earlier – if a lowering of the income threshold at which repayments go into effect is sanctioned.

Other taxes could also be raised, although Sunak could hold back for fear of incurring the wrath of people already facing higher energy bills and rising inflation.

Tax breaks on pension tax contributions could be attacked while capital gains taxes (typically levied on disposals of shares) could align with those levied on income.

Jason Hollands, director of wealth manager Tilney, believes it would be “politically risky” for Sunak to announce further widespread tax hikes.

Like the IFS, he believes the underlying theme of Sunak’s budget will be “spending restraint in order to create room for pre-election tax cuts in 2024”.

A tax ripe for reform, but unlikely to be affected by Sunak, is the inheritance tax. A combination of spiraling house prices and assets has made inheritance taxes a rich source of revenue for the treasury.

The latest data shows £ 2.7bn in inheritance tax receipts between April and August, £ 0.7bn – 35% – more than the same period last year.

Currently, when a person dies, the first £ 325,000 of their estate – property, shares and cash less debts – are exempt from inheritance tax. Any amount above this zero rate bracket is generally taxed at 40 percent.

For married couples and civil partners, the rules also provide for a spouse or civil partner exemption. This means that after the death of a partner, the survivor can claim any unused portion at zero rate.

In addition, there is a zero rate band for residency of £ 175,000, available when a house is passed on to a child or grandchild – including stepchildren, adopted children and family children. reception.

Earlier this year, Sunak said those zero rate brackets would be frozen until 2026. By then, the £ 325,000 exemption would have remained frozen for 17 years.

“Outrageous,” Hollands says. “Since the introduction of the £ 325,000 threshold, global stock prices have climbed over 400% and retail prices have risen by over 30%. Taking inflation into account, it should be £ 100,000 more than it is.

James Ward, wealth expert at Kingsley Napley law firm, says IHT bills vary widely from region to region, with the highest sums paid in London and the Home Counties (see table). Stratford-upon-Avon, Winchester, Devon and Dorset are also ‘hot spots’.

Ward describes the inheritance tax as a voluntary tax – because it can be avoided with careful financial planning.

“It’s the beneficiaries who end up paying the tax,” he adds, “so the incentive for someone to mitigate the tax before their own demise is not always high. But I urge anyone in their late 50s or early 60s thinking about IHT planning. ‘

Source link

Leave A Reply

Your email address will not be published.