Inheritance: Expert gives advice on ‘good planning’
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A Treasury source suggested in May that a rise in inheritance tax would be a “politically sound move to raise funds for the country in the recovery phase of the pandemic”. The source told the i newspaper: “It is something the Chancellor is minded to do and is moving towards, but the timing remains uncertain.” Everything from wealth taxes to pensions and income tax has been put forward as a potential route to helping the Government pay for costly furlough and business support schemes used in the last 18 months.
Inheritance tax is among these options.
The standard inheritance tax rate is 40 percent, but it is only charged on the part of your estate that’s above the threshold of £325,000.
James Smith, of the Resolution Foundation, told The Times in May that wealth taxes are the only way of raising the cash required if the Government wants to avoid hikes on income tax, national insurance or VAT.
He said: “It’s extremely difficult. They have already raised corporation tax and frozen tax thresholds. The other big option is wealth taxes.”
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Inheritance tax news: The UK Treasury (Image: getty)
He added that there was “no easy, painless way of raising the sort of sums we’re talking about” without looking at income tax, national insurance or VAT and “if you want to do something that isn’t distortionary and is relatively progressive, you are very quickly drawn to changing one of these big taxes”.
Others have advocated for a decrease in the rate of inheritance tax.
Conservative MP John Stevenson said the tax was “deeply unpopular” and was in need of “fundamental reform” to make it fairer.
He added: “A much lower rate of somewhere in the region of 10 percent would discourage avoidance. Combining this with the abolition of a number of the complex means of escaping the levy could raise just the same amount [as the threshold freeze] and possibly more.”
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Analyst at AJ Bell, Tom Selby, told Express.co.uk this month that wealth taxes are the fairest way to raise funds.
He said: “I think wealth taxes are probably the fairest way – ensuring those with the broadest shoulders are targeted to take on the costs of paying for COVID-19.
“It would be fair, whether it is something they believe they can do politically is another thing. There will be challenges around people avoiding bills.”
On whether the rate of inheritance tax could increase, Mr Selby predicted the Government will instead look to change.
He added: “You can either increase the percentage charged or you can decrease the limits of inheritance tax. Historically they have gone for the thresholds route and I suspect that is the option they would go for again.”
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Capital gains tax is another wealth tax Mr Selby believes could be in for big changes.
It is currently charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer.
But some experts believe Chancellor Sunak could align capital gains tax with income tax.
Mr Selby adds that this measure would likely spook people into moving cash into ISAs and pensions to try and avoid hefty bills.
He continued: “You’d also see a flow of assets into tax-efficient savings products such as ISAs and pensions.
“Naturally if you raise capital gains tax people are going to want to move their money where they won’t be charged.”