Inheritance tax explained by Interactive Investor expert
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
Inheritance tax (IHT) is only levied on estates valued over £325,000 and while this is designed to only impact wealthy families, more Britons are being hit by the tax. As more people may be hit in 2022, they may want to take steps to limit what’s paid to HMRC.
According to Money Helper, the public advisory service, trying to reduce how much IHT is due on an estate is complicated. But, in short, Britons can reduce how much tax is paid by leaving a legacy to charity.
Taxpayers can also put their assets into a trust for their heirs, leave their estate to a spouse or civil partner, pay into a pension instead of a savings account and/or regularly give away up to £3,000 a year in gifts.
Taking note of these options may prove to be especially important for Britons as recently released data from HMRC showed the Government is collecting record amounts from taxpayers.
In late-December, HMRCs latest tax receipt data showed the overall tax take for the state between April and November 2021 was £448.1billion, £106.8billion higher than the same period last year.
For IHT specifically, £4.1billion was paid to the Government’s coffers, £600million more than the same period in 2020.
Liz Ritchie, a Partner at Mazars commented on these results and reiterated the importance of planning ahead.
She said: “IHT receipts ramping up through the second part of 2021 comes with little surprise.
“With a frozen threshold and surging house prices, HMRC will be satisfied to be adding to the relatively small amounts inheritance tax raises for its pockets.
Backlash rises as free prescriptions under threat for over 60s [WARNING]
Premium Bonds draw looms for savers – could you be a 2022 millionaire? [INSIGHT]
Inheritance tax: Pension ‘efficiencies’ for cutting bills may be hit [EXPERT]
“And we can expect to see this soar further in the coming years as thousands more homeowners are dragged into paying tax on their estates.
“Reports predict that by 2024 average property values could be 13.5 percent higher than they are today. By 2026, the OBR suggests that towards 50,000 estates will be subject to inheritance tax.
“With the tax likely to catch more and more people out, it’s important people invest their other assets tax-efficiently and consider options such as gifting.
“Something that isn’t always maximised by families. This can ensure that more of people’s assets are passed to loved ones or onto charitable causes, rather than into the treasury’s money pot.”
Julia Rosenbloom, a tax partner at Smith & Williamson, also warned ongoing coronavirus issues could force difficult decisions.
She said: ” As if the need to pay for the ambitious spending commitments announced in the last Budget isn’t enough, the threat of Omicron could require the Treasury to find more money for compensating businesses if there is a need to shut down parts of the economy to slow the spread of the virus, and tax receipts could therefore be vital in the months ahead.
“If the uncertainty surrounding Omicron persists the Chancellor could be even more tempted to consider increasing personal taxes in the next Budget.
“The date of which is currently unknown but could come as early as the spring.
“People should continue to carefully consider their tax planning and make the most of current allowances before any further possible changes are introduced.
“Gifting to charities can provide relief which can reduce an individual’s income tax liability.
“Gifts to qualifying charities are also exempt from inheritance tax and if an individual leaves broadly 10 percent of their estate to charity in their Will, their estate would only suffer a 36 percent inheritance tax rate, rather than the usual 40 percent.
“Those feeling particularly generous could even consider setting up their own charitable trust, claiming appropriate tax reliefs so that as much as possible goes into the pockets of the charities.”
Source: Read Full Article