Rishi Sunak may hit your pocket in Inheritance Tax exemption grab – ‘frustrating!’

Inheritance tax: Financial advisor provides advice

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Inheritance Tax receipts have continued to surge recently, with data released from HMRC showing receipts for April to September 2021 were £3.1billion – £700million higher than the same period a year earlier. The levy clearly remains lucrative for the Treasury, and it is for this reason many experts are convinced there will be changes made here. Express.co.uk spoke to Christine Ross, client director and Head of Private Office (North) at Handlesbanken Wealth Management, who discussed IHT ahead of the Budget this week.

She said: “Something which I feel is on the cards, and could potentially be more of a tidying up, is Inheritance Tax.

“We now have a number of reports prepared in the years up to 2019 by the Office for Tax Simplification – and it is the OTS the Chancellor turns to, asking them to give an independent and unbiased view on clarifying taxation.

“So, where I think they could go, is around the annual allowances and exemptions made available through IHT.”

Annual allowances currently permit Britons to give away certain amounts of their income without incurring a tax bill through the IHT levy. 

There is split opinion on whether these allowances are controlling of income before death, or whether they simply allow more ways to legally avoid the tax.

However, Ms Ross believes the exemptions could in fact be on the chopping block for the Chancellor this week.

She continued: “Everyone can give away £3,000, which is nice and simple – per year, out of an estate straight away. People can give away as much as they want, as long as they survive another seven years.

“The one which is less known, and the one I speak about regularly, is the idea of surplus income – income which you can give away regularly of a similar amount.

Rishi Sunak may ‘put money back in pockets’ by raising tax relief [ANALYSIS]
Inheritance Tax: ‘Hidden wealth bracket’ means Brits caught in tax net [EXCLUSIVE]
Good news for savers: Interest rates boosted across range of accounts [UPDATE]

“Lots of grandparents will pay school fees for their grandchildren. You need to intend to make regular payments at the outset, but if your circumstances change it doesn’t matter, even if you’ve only given one gift. It’s the honest intention at the outset which matters.

“Income can be from earnings, dividends, interest, but not capital. Therefore, it would suggest those with the highest income would be the most affected.

“What has been suggested is that all of these exemptions be wrapped up into one larger monetary amount. 

“For those with higher incomes, the sum is probably not going to be as high as what they can afford to give away, which could be frustrating. 

“I think making one big exemption would largely knock the idea of surplus income on its head, and would affect people who are looking to make larger gifts.”

Some individuals will be looking to give away thousands of pounds a year from their estate, while others will be looking for more modest sums to legally avoid the taxman.

However, one important issue to bear in mind is the seven year rule, which will be important to a swathe of Britons.

This means no tax is due on any gifts a person gives, as long as they live for seven years after giving them – less the gift is part of a trust.

Ms Ross, though, highlighted there has been a suggestion to reduce the seven year rule, instead making it five years – which could create a major change.

What is happening where you live? Find out by adding your postcode or visit InYourArea

Of course, though, this is just one option which could potentially be on the table, and it is not yet clear the changes which will actually be enacted.

Regardless, though, Ms Ross says this may present the perfect opportunity to review one’s tax affairs.

This may involve enlisting the services of a financial adviser, or taking stock of one’s finances. 

Ms Ross concluded: “Inheritance Tax is my top tip for the Budget. It won’t raise the most, but it could redress the balance a bit as to how tax changes are accepted.

“We’ve already had all this freezing of allowances, which actually does raise a lot of money.

“But there could be slight tweaks which take place which could raise some money for the Chancellor.”

Source: Read Full Article