Why worry about inheritance tax?

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It has always seemed like a problem that only the rich need to worry about.

But as rumors circulate of an inheritance tax raid and warnings mount about the impact of house prices on the value of our personal assets, more of us must start to take this enticing tax seriously. by 40 percent.

Where do we do?

The first thing to look at are the numbers, which are always a bit out of date, unnecessarily.

The latest figures on record date from 2017 to 2018, when only 3.9% of deaths reported the charge. This is a decrease from 4.6% the previous year, due to the introduction of the zero residence rate bracket in 2017, which increased the limit at which tax is due for certain estates.

This represents about 25,000 domains, which is a relatively small number. However, the numbers are expected to be much higher for last year, due to the increase in the number of deaths from the coronavirus pandemic.

So why is there such an explosion every time it comes to changing or increasing inheritance tax? It has to do with how much is charged.

Over the past 10 years, the amount paid in IHT has roughly doubled, mainly due to the colossal increase in house and investment prices, and the average amount paid from 2017 to 2018 was £ 197,000.

The annual limit that we are all allowed to bequeath without inheritance tax is currently £ 325,000. There is also the zero rate bracket for residence of £ 175,000, but only if you are transferring a primary residence to a child or grandchild.

There are strong arguments for and against the tax.

If you’ve spent your life accumulating your wealth to pass it on to your family, and you’ve already paid taxes on it once, you won’t be happy if another 40% goes into the treasury.

Likewise, if you want to give younger parents a chance to buy their own home, rising rents and real estate prices mean that might be the only way to do it.

At the same time, the whole point of the IHT is to rebalance wealth and prevent inheritance from making the rich even richer.

Additionally, if you are wealthy enough to have an estate large enough to be taxed, you might argue that the money might be better spent elsewhere, such as in health, social services, or education.

Sarah Coles, spokesperson for Hargreaves Lansdown, says: “There are many reasons people don’t like paying inheritance tax. It may seem like these are things that you paid tax on when you earned the money, and again when it increased, so this is another level of taxation on the same money. Also, although only a few people pay it, if you do face it, it is a punitive level of taxation – at 40%.

Sarah adds, “Some people are trying to find a way to pay for it, but there are rules in place that put an end to many of the more common whistles.

“For example, if you hand over the ownership of the family home to the children to prevent it from falling into your estate, if you still live there and do not pay market rent to your children, it is still included in your estate. for inheritance tax. purposes.

One of the most common ways to reduce an IHT bill is to write a will, which guarantees that your wishes will come true, lets you choose where your estate goes, and whether you are a married couple or in a civil partnership. , you can pass on your inheritance tax allowance to your partner on the first death.

Leaving the money to a charity or community sports club also means there is no tax payable.

You can also legally give £ 3,000 in gifts each year, plus £ 1,000 per person for wedding gifts – or £ 5,000 for a child and £ 2,500 for a grandchild – as well as small gifts of up to £ 250 per person.

Regular donations can be made from your income, if they have no impact on your standard of living, while larger sums of money can also be given as gifts, provided you live at least seven years after making them.

We must not forget either the pensions, because the balances of the pensions are exempt from tax.

Steve Webb, Partner at LCP Consultants, said: “Although less than one in 25 domains face an IHT bill, the tax still generates valuable revenue for the treasury.

“It’s a complex tax that causes some people to choose to organize their affairs to avoid leaving their heirs with an IHT bill when they die.

“One popular route is to give money and, provided the donor survives more than seven years after the donation, the money will not normally be considered part of his estate for IHT purposes.”


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