Why inheritance tax planning should be top of your to do list
Figures suggest the number of estates now forecast as liable to pay inheritance tax (IHT) are set to increase to one in ten by 2021. Over the last few years IHT has increased boosting the government coffers with annual monthly receipts listed as £3.8 billion in 2014/15 and £427 million in June 2015.
George Osborne announced in his Summer Budget that he would remove the family home out of IHT for everyone bar the wealthiest members of the public. Specifically he said: “You can pass up to £1 million on to your children free of IHT. No more IHT on family homes.” He was of course referring to the new transferable ‘main residence nil rate band’ (MR-NRB). His statement has in turn been widely reported on and many would be forgiven for believing that they are now entitled to a £1 million nil rate band or indeed that the family home is now fully exempt from any IHT payments.
Currently, tax is applicable at the rate of 40% after the first £325,000, a sum that can also be transferred between married couples totalling £650,000 and which applies to property and assets owned in an ‘estate’.
Any gifts made to a charity remain free of inheritance tax.
Notably, a beneficiary named in the deceased’s will pays 40% inheritance tax on the gift, and then this beneficiary passes away with an estate valued at over £325,000 as well, then this money will be subject to another 40% tax. Hardly fair would you agree?
The new allowance officially commences in five years’ time (after the next election), as it is being phased in over a period of four years starting in April 2017.
The table below demonstrates:
Those who live in London or the South East where house prices remain typically high would not really benefit from the new allowance either long term.
IHT is plagued with complexities and one would be forgiven for thinking that there is no prospect of relief from the caprices of IHT which realistically and currently means a tax on previously taxed assets.
What advice are you giving to your clients in relation to IHT?
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