Inheritance tax warning: estate threatened as relief will disappear – act now | Personal Finance | Finance

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HMRC collects more from Inheritance tax (IHT) between April and October 2021, the government collected £ 3.6 billion through tax, an increase of £ 600 million compared to the same period a year earlier. Andrew Gillett, Head of Wealth Management Advice at BRI Wealth Management, reflected on this and explained how certain reliefs and exceptions can be addressed in the coming months.

Reforms may be on the way

Mr Gillett warned that it was “not a surprise” that IHT revenues had increased due to rising house prices and the freezing of IHT thresholds / subsidies. Many expected Rishi Sunak to announce a number of tax changes in his latest budget as the cost of the corona virus increased and while the Chancellor stopped making any changes, Mr Gillett warned that people should remain vigilant.

“We were surprised not to see any legislative changes in the latest budget when you consider that the government continues to need an increase in revenue,” he said.

“It is likely that more families will pay inheritance tax in the coming years due to the freezing of benefits by 2026 and further reforms may come.”

Mr Gillett explained why he thought change could be on the way and what specifically could be aimed at.

“Before the pandemic, there were several reports published by the Office of Tax Simplification and a parliamentary group for all parties suggesting that there may be some reforms of the IHT, including changes to lifetime gifts, the interplay between CGT and other allowances such as business and agricultural real estate relief and even exemptions. “, he said.

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“We think it is likely that we will see reforms, it is just hard to know when. Anyone who is worried about IHT would do well to look at it sooner rather than later.

“There are many ways to legally mitigate inheritance tax, including giving gifts to your family, taking out insurance, using different types of trusts or investing in qualified assets. The important thing is that families do not sleepwalk to pay this tax and take good time advice. to ensure that planning is effective. “

The need to take advice may prove to be particularly important in the coming months as new research from Killik & Co. has shown that many British adults are reconsidering how to support their families financially due to the coronavirus.

Killik & Co. recently surveyed 2,020 British adults, 1,005 18-54 and 1,015 55+, and the results showed that over a quarter of (28%) British adults who currently, or intend to, financially support their grandchildren or children say that The pandemic has prompted them to re-evaluate their financial aid plans.

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Inheritance plans change

In general, IHT is usually a consideration for people who have died and are handing over their assets. However, the tax can also be levied while a person is still alive but still giving away parts of their property or financially supportive family members.

The pandemic has forced many to reevaluate the time they donate to their families. Killik & Co’s research showed that 25 percent have increased, or plan to increase, the amount of financial support they provide and 22 percent have decreased the amount of support they provide.

Of those who said that Covid has made them reevaluate their plans for financial support for their family, one-fifth (20 percent) have started transferring wealth and providing financial support to their children / grandchildren earlier than planned.

When asked why they have made changes to speed up the financial support they pass on, 38 percent want to give gifts while they are still alive because they feel that their loved ones need it more now, while 38 percent would also like to give a gift financially during their lifetime. In addition, 22 percent said their children, or grandchildren, have struggled both emotionally and financially in the pandemic, which made them want to help earlier.

Just as rising house prices are likely to lead to more paying IHT, they are also forcing others to hand over assets sooner. Over two in five British adults (42 per cent) plan to donate cash while 20 per cent would support by paying for a deposit in the house. Parents and grandparents also strive to help with wedding payments, university fees, mortgage payments and junior ISA.

Families are poorly prepared

While many plan to help younger family members sooner, Killik & Co. warned. 44 percent of British adults are unaware of heredity rules and how they are affected by them. Its research noted that 16 percent said they did not know but are learning about the rules and only 10 percent are aware of such decisions when seeking financial advice. This “underscores the knowledge gaps that emerge when it comes to financial planning, such as knowing that if the gift is given seven years before they die, no inheritance tax needs to be paid.”

Shaun Robson, Head of Wealth Planning at Killik & Co, commented: “The last 18 months have been a challenge for many. It has led us to re-evaluate many aspects of our lives, and that includes our finances. Our research has shown that many have felt compelled to financially support their loved ones when the pandemic tested them, but while this is admirable, it is also important that they evaluate their own financial plans first.

“It’s hard to take emotions out of the situation, but by helping others, you can ultimately influence your own future.

“Seeking financial advice as early as possible is important, especially when looking to the future. Having a financial plan helps you identify potential future costs and allows you to be prepared for any obstacles that arise while knowing how much. you can afford to give. ”

How much is paid in IHT?

In general, IHT is levied on the estate of someone who has died and transfers their assets. It is usually paid only on estates valued at over £ 325,000.

There is normally no IHT to pay if either the value of your property is below the £ 325,000 threshold or if anything above the £ 325,000 threshold is left to a spouse, civil partner, a charity or an amateur sports club in the community. In addition, if a home is left to children or grandchildren, a person’s IHT threshold can be raised to £ 500,000.

Those who are married or in a partnership and have a bequest worth less than their threshold can transfer any unused threshold to their partner’s threshold when they die. This means that their threshold can be as much as £ 1 million.

Where IHT expires, it is charged at 40 percent. This 40% is charged only for those parts of the estate that are valued above the threshold of £ 325,000.

For example, if a property is valued at £ 350,000, 40 per cent will be charged at £ 25,000. It is also possible to reduce this fee to 36 per cent if at least 10 per cent or more of the “net value” of an estate is left to charity. in a will.

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