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Will inheritance tax rates rise?
Growing concerns are mounting as people wait to see how the Government plans to pay for the increasing debt mountain, following the coronavirus crisis and bailout.
It may be no surprise therefore, that people believe that impending increases to taxes are coming.
New research from The Private Office1 reveals that eight out of ten people (80%) now believe that Inheritance Tax (IHT) rates are likely to rise, as just one way to pay for the pandemic bailout. And, in fact, almost 30% believe this is highly likely to happen.
As we appear to be heading for the worst financial downtown since wartime Britain, comparisons are being made to how the Government dealt with the aftermath of WW2, when death duty tax, as it was known, was raised to over 80%.
Given all the options may be on the table when the Chancellor looks at how he may balance the books and certainly that a possible increase in IHT rates could be around the corner, it’s good to know that many people have already recognised the importance of IHT planning – the survey results show that almost 70% of respondents thought IHT planning was already important.
But the pandemic has encouraged others too - one in three (31%) now feel that IHT planning is more important than it was before.
Don’t wait, plan now to keep more of your wealth in your family
The Government has taken some extraordinary steps to try and keep the economy buoyant during the current pandemic but measures such as the Furlough Scheme will need to be paid for.
It is now considered a strong likelihood that increasing the rate of Inheritance Tax (IHT) and reducing IHT allowances will be used as a means to help meet the bill.
Locking in current tax rates and allowances before they are changed is a good reason to consider estate planning sooner rather than later.
However, tax planning is about so much more than just reducing your estate’s tax burden.
It is also about assessing whether you can afford to gift today in order to help your family during your lifetime and help ease the financial strain that some family members might be feeling in the current, challenging economic environment.
With one in four people (25%) now more comfortable talking to their loved ones about their finances after death than they were before the pandemic, some positives may come out of this horrendous time. In fact almost 13% of people have since started discussions.
Of course, it’s worth noting that at this point in the time the Government has made no suggestion that it is considering a change to the Inheritance Tax regime or that it is in fact considering doing so. We will have to wait and see.
When do you have to pay inheritance tax?
Everyone has a £325,000 nil-rate inheritance tax band. If you are married or in a civil partnership, you have a combined nil-rate band of £650,000. 40% IHT is then payable above this threshold or 36% if you leave at least 10% of your net income to charity.
An additional nil rate main residence band was introduced in April 2017 meaning up to £1 million could be passed on to direct descendants.
The Private Office research
Other interesting insights from our research revealed:
- 80.13% of people believe its likely IHT rate will rise as one way to pay for the coronavirus bailout
- 27.20% believe it would be very likely to rise
- 31.26% of people believe IHT planning is more important than before the pandemic lockdown
- 67.28% of people believe IHT planning was already important
- 24.91% of people are more comfortable about discussing their finances after death, than they were before the pandemic
- 12.55% having since started discussions with loved ones due to the pandemic
Our new webinar series
The Private Office is running a serious of intergenerational wealth webinars - Keeping it in the Family - which explores the best ways to manage passing on wealth to your loved ones.
If you are interested in learning more about keeping wealth in the family, join us on our NEW two part Webinar series – Keeping it in the Family
Please note: The Financial Conduct Authority (FCA) do not regulate estate planning.
References
- Research carried out on behalf of The Private Office to Savingschampion subscribers and includes 1,092 respondents from 23/5/20 – 15/6/20