Inheritance tax: Expert provides tips on avoiding hefty bill
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Inheritance tax is charged at 40 percent above the threshold of £325,000 – a threshold which hasn’t changed since 2009. Over the years, more and more people have been forced to pay the tax to HMRC, as property prices rise yet the threshold remains the same. However, some experts are calling for it to be reformed in tomorrow’s budget to make taxes fairer for all.
Reports the Chancellor plans to extend the current freeze on the nil-rate band for inheritance tax will be clarified when Jeremy Hunt makes his Autumn statement tomorrow.
STEP, a professional body comprising lawyers, accountants, trustees and other practitioners which helps families plan for their futures, is calling for reform to the current “complex” and “unfair” system.
Emily Deane, STEP’s Technical Counsel and Head of Government Affairs, said: “STEP has long argued that the inheritance tax system is too complex, unfair and in dire need of reform.
“A low-rate tax with few reliefs and exemptions is far preferable than one with a high headline rate that those who can afford professional advice can avoid.”
However, she added instead of simplifying the system, which would still benefit the public purse, the Government appears to be considering maintaining the status quo by freezing the nil-rate band.
She added: “It would be incredibly disappointing if the Government freezes inheritance tax until 2028.
“Tinkering with rates and reliefs will do nothing to address the huge complexity many families face.
“Any changes must look at the tax as a whole, not just individual reliefs and rates, which if scrapped and amended in isolation can lead to increased avoidance and abuse.”
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Inheritance tax is charged on the value of an estate owned by someone who has passed away.
Any debts, such as mortgages and funeral expenses are taken from the total estate value first and IHT is only paid on the remaining amount – if it exceeds the threshold.
However, there are legal loopholes which can help people save thousands if they are clued up on the exceptions.
Ms Deane added: “Not reforming inheritance tax would be a missed opportunity to make positive changes to address this complex, ineffective and unfair tax.”
An HM Treasury spokesperson told Express.co.uk: “We do not comment on speculation around tax changes outside of fiscal events.”
Gifting assets before a person dies can significantly reduce how much inheritance tax will be due on their estate.
HMRC has an online calculator on its website where people can work out how much inheritance tax they will have to pay.
The calculator can be used to work out the amount needed to qualify for reduced IHT rates when preparing a will.
Gifts that are exempt from inheritance tax:
- Gifts to a spouse or partner
- Multiple gifts up to £250 a year to any other person
- Charity gifts
- Payments to help an elderly relative or minor with living costs
- Gifts worth £3,000 or less in any tax year (excluding any £250 gifts, provided they are not to the same person)
- Gifts made seven years or more before the donor (gift giver) passed away
- Parents can gift cash up to £5,000 if a child gets married
- Grandparents can gift up to £2,500 each if a grandchild gets married.
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