Tuesday, January 26, 2021

Will you be one of the people leaving your wealth to the Chancellor rather than your loved ones?

By Erica Manderfield, tax partner at Streets Chartered Accountants.

According to Treasury figures, the Revenue’s receipts for inheritance tax received in any one year has reached an all time high of £4.3bn. Whilst increased property values may be, in part, a reason for this increasing number the reason is more likely to be that people still don’t consider, or realise, that to a great extent payment of IHT is voluntary. With effective tax planning it can be possible to reduce, even mitigate fully, the amount of IHT paid on the death of a loved one.

Why then don’t people look at inheritance tax planning? There seems to be a number of reasons, not least the fact that perhaps few of us want to consider our own mortality. More likely than not many of us don’t realise we have potential liability or that our net worth exceeds the IHT threshold – currently £325,000 for a single person and £650,000 for a married couple and civil partners. This may also be the reason why more than 50% of people do not have a will. Why is this important? The absence of a will invariably means that no inheritance tax planning is in place.

Still, it does seem hard to comprehend that such reasons are significant or meaningful enough for people to prefer to leave more of their estate than they are required to the Chancellor as opposed a loved one, or in their eyes a more worthy cause.

With an ageing and generally better off society it would not be unreasonable to think that the Revenue’s receipts for IHT are, in the absence of any tax planning, likely to increase year on year,  not least as the thresholds are not likely to increase significantly.

Given this background and with indications that those born after the 1970s increasingly expect to inherit wealth from their parents, surely it must be time to consider not only what you would like to happen to your estate but also how you might ensure more of what you have goes to those you really want it to. The benefit of such tax planning could be that your beneficiaries and family benefit from financial support whilst you are still around, with help for a new car, first house or the cost of education forming part of your “legacy”.

For most the starting point really is getting to grips with the value of their assets, often much more than just the house they live in, with other investments, business assets and life policies contributing to their net worth. Once known, then thoughts can turn to plans of your intentions and to reducing the potential IHT liability, a task for which your tax adviser is well placed to assist with.

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