“We all want to see a system where it is only the very rich that pay inheritance tax, and not hard working people.” — A quote by Prime Minister, David Cameron during a debate in Parliament recently.
In recent times, house prices have increased significantly and so the payment of inheritance tax (IHT) could possibly affect more of the population than ever if the current threshold remains. A property is undoubtedly the most profitable asset we’re likely to own.
A recent survey carried out by Old Mutual Wealth revealed that of the 836 advisers questioned, around 13% indicated they did not support reform, while 11.5% were in favour of abolishing inheritance tax altogether and 28% called for the exclusion of the primary home. Other questions asked revealed that 73.2% of advisers indicated they expect further legislative changes to the pensions system in the next parliament. Do you agree? If questioned yourself, how would you respond? Are you pro inheritance tax reform or against?
Using a house price index calculator an example to demonstrate; a couple who purchased a property in 1975 for around £22,000 in Greater London would see its current valuation at around £665,651. That’s a very favourable increase of around 2925.69%. Consequently, they would currently be liable for the payment of IHT including any other possible assets they may have accrued. Seemingly on paper they are “asset rich” through the purchase of their property however, many would ultimately claim they are only “wealthy” because of inflation. This is a trap many of the population have fallen into as house prices continue to inflate.
The Office for National Statistics recently published the following:
- UK house prices increased by 10.4% in the year to October 2014, down from 12.1% in the year to September 2014.
- House price annual inflation was 10.8% in England, 5.7% in Wales, 4.9% in Scotland and 4.9% in Northern Ireland.
- House prices continue to increase strongly across the UK, with prices in London again showing the highest growth.
- Annual house price increases in England were driven by an annual increase in London of 17.2% and to a lesser extent increases in the South East (11.9%) and the East (9.6%).
- Excluding London and the South East, UK house prices increased by 6.7% in the 12 months to October 2014.
- On a seasonally adjusted basis, average house prices increased by 0.1% between September and October 2014.
- In October 2014, prices paid by first-time buyers were 12.0% higher on average than in October 2013. For owner-occupiers (existing owners), prices increased by 9.7% for the same period.
According to Old Mutual Wealth through research they have carried out, “the problem with IHT is that many individuals caught under the current £325,000 threshold will feel they are leaving a relatively modest inheritance to their family and yet it will be subject to a tax which is ostensibly supposed to target wealthier individuals. Exempting the primary home from IHT also received some support. However, this would have the knock-on effect of encouraging individuals to store wealth in their home for tax planning purposes; this may not be seen as a viable option considering the potential for loss of stamp-duty revenue.”
So, as a professional do you agree with this research? What is your opinion on the matter of IHT reform and are your clients aware of how it could potentially affect them long term? Would your advice stand the test of time?
HMRC are currently reviewing their policies on tax avoidance. Also, they propose to review trusts in the long term however currently, although HMRC are not proposing anyone be liable for IHT prior to death, they may be asking some to pay ‘IHT trust charges’ before they die. Do you agree this is acceptable?
Please share your comments below.
