Good news for Inheritance Tax Planning

Inheritance Tax Planning
Inheritance Tax Planning

Article by Phil

Good news for Inheritance Tax Planning.

Not news about its abolition as some commentators had suggested in the run up to the latest budget, but good news about paying the tax itself.

Inheritance Tax (IHT) is payable on the value of an estate after a person’s death. The first £325,000 is tax free, doubling up to £650,000 if the estate passes to a spouse. But after that IHT is payable at 40%. The rate of 40% hasn’t changed since 2009. But more importantly neither has the £325,000 limit. That has meant that more and more estates have fallen into the IHT threshold because of inflation over the last 15 years, especially house price inflation. This is another example of “fiscal drag” or tax by stealth. HMRC are forecasting that IHT receipts will hit £10 billion by 2028/29, which would be a 37% increase on the £7 billion collected in 2023/24. Tax receipts could go even higher as there is an estimated £2.5 trillion in house equity waiting to be inherited by future generations.

There are no plans to review the tax rate or limits until at least 2026 according to HMRC.

But the rules on paying the actual IHT are changing, which could help with Inheritance Tax Planning. Up to now, the estate has had to pay the tax liability before the proceeds of the estate is released. This causes serious cash flow implications for many estates and their beneficiaries. It often leads to loans being taken to bridge the gap, but sometimes there; s a stalemate if a loan is not available.

However, from 1st April, estates will no longer have to demonstrate that they have not been able to get a loan before applying to HMRC for a “grant on credit” to cover the tax liability. This should make the process of settling IHT on estates easier and mean they can be settled quicker. However, HMRC have not yet released all the finer details.

But it seems that IHT is still not understood by millions of people. The latest research from Canada Life found that a quarter of over 55’s thought that they would have to pay IHT. When in reality only 4% of estates are liable for the tax. It seems that Inheritance Taxes still worry people. But still less than half of the over 55’s said they were going to get any Inheritance Tax Planning advice. The main concerns were that it was too complicated, too legal and would cost them more in taxes. The reality is quite different of course.

More generally tax worries are mounting. Not helped by the debacle currently happening within HMRC. The latest developments include HMRC closing its self-assessment helpline for six months of the year. This is being coupled with restricted hours on the VAT helpline, which will now only be open five days at the end of each month. The PAYE helpline is also being cut and will no longer deal with tax refunds. You couldn’t make it up. It seems HMRC is struggling with the number of trained advisers available. It wants taxpayers to go online to resolve their queries. On average its reported that taxpayers wait 10 minutes to speak to someone.

Self-Assessment receipts were almost £1 billion lower this year than last year.

Things may change with these plans though. It’s now reported that the Treasury Select Committee of MP’s has got involved and HMRC are reconsidering their plans.

Inheritance Tax Planning
Inheritance Tax Advice in Nelson | Burnley | Hapton | Padiham | Bacup | Todmorden | Hebden Bridge | Haworth

 

Estate and Inheritance Tax Planning Explained

Christina Clegg IFA explains the benefits of estate planning and Inheritance Tax Planning.

If you have any questions about Inheritance Tax Planning please feel free to give us a call on 01282 614444 or drop us an e mail to enquiries@ccfps.co.uk

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