IHT not immune to the impact of Covid-19
Inheritance tax (IHT) is not protected from the impact of the coronavirus pandemic, according to a tax and wealth specialist.
According to latest HM Revenue and Customs (HMRC) figures published, IHT receipts hit a five-year high in the final quarter of 2020.
The continual rise in receipts peaked in October 2020, with receipts in that month far exceeding the previous five years.
Neil Jones, tax and wealth specialist at Canada Life comments on the latest data, suggesting it shows Inheritance Tax (IHT) “has not been immune” to the effects of the COVID-19 pandemic. He said:
“the results show that COVID-19 is continuing to have an impact on how HMRC is able to collect and receive across several taxes and it looks like Inheritance Tax has not been immune to this”.
“Results for the 2019/2020 tax year already show the beginning of a slight dip in IHT receipts which for the large part has been attributed by HMRC to their refusal to accept cheques in the early stages of the pandemic.
“A situation which has now been resolved. Interestingly, HMRC has also provided a glimpse into the IHT receipts received so far in the current tax year, finding that they are already up by £0.1billion on the same period the year before.
“If this trend continues we can expect IHT and other income and capital related taxes to start playing an increasingly important role, especially as we start to see falls in consumption taxes such as alcohol and fuel.”
Julia Rosenbloom, tax partner at Smith & Williamson, also commented on HMRC’s latest IHT figures. She said
“HMRC’s latest tax receipts, released last week, show a marked increase in the amount of Inheritance Tax (IHT) collected in the final few months of 2020,” she told Express.co.uk.
“IHT receipts steadily rose from August onwards and peaked at a five-year high in October.
“While this pattern of higher receipts in the winter months is usual, this latest rise was significantly more pronounced last year and this is likely to be due to the impacts of COVID-19 in the Spring.”
Ms Rosenbloom added that it is recommended that some should put their financial affairs in order during their lifetime. She said:
“Inheritance Tax continues to be a worry for many, particularly when the bill has to be settled within six months of a loved one’s passing.
“However, there are some quick and simple steps we can all take to ensure our financial affairs are in a better shape for any unexpected events.
“These include making a will to ensure the money goes where you want it to, making gifts to loved ones while still healthy enough to do so and making the most of government available tax reliefs.”
Due to the Chancellor With the having prompted Chancellor of the Exchequer Rishi Sunak to announcing unprecedented public spending due to the coronavirus pandemic including the furlough scheme and the Self-Employment Income Support Scheme (SEISS), this has fuelled speculation on potential tax changes in the future.
Ms Rosenbloom added:
“For the coming year, it is likely IHT will continue to rise – particularly if asset values increase and if any IHT changes are made in line with the Chancellor’s commissioned review into IHT last year.
“You might want to consider your tax planning now before any changes we might see in forthcoming Budget in March.”
Tom Bostock, financial planner at 7IM, advises on tax planning for the future and identifies some vital areas prone to pitfalls for the less experienced – one of those key areas is the need to watch out for other forms of tax liability. He said:
“Whilst calculating the IHT liability on an estate will likely be the focus of attention, it is important to also be aware of the Income Tax and Capital Gains Tax (CGT) liabilities,” he said.
“Dealing with an estate through to probate being granted can take many months, if not years, to be finalised.
“During this period, assets within the estate may continue to generate income (such as rental property and certain investment assets).
“This continues to be liable to income tax and as such, tax returns need to be completed and submitted.
“With respect to CGT, the current position is that underlying gains, for example within investments or property, are eliminated on death. As such, executors may completely disregard CGT.
“However, let us consider the scenario where markets rise rapidly, for example, recovering from the depths of a crisis as we saw in the second half of 2020.
“If an estate with large investment portfolios is being managed through this period, the gains realised from date of death to probate being awarded need to be accounted for. If these happen to breach the available allowances, CGT would be due.”