Complexity of inheritance tax planning
The UK faces one of the highest effective rates of inheritance tax of any country in the developed world. Currently in 2015 it is 40% of any non-exempt assets over £325,000. Only France beats the UK in the G7 countries on that front.
The high level of the tax is compounded by the complexity of inheritance tax planning system. Of those estates which are worth more than £1 million, approximately 40 per cent pay no inheritance tax at all – mainly due to forward thinking and good planning I suspect.
It is not really surprising when you consider the fact that there are 91 different tax reliefs which open up a vast array of discounts and exemptions. Everything from wedding gifts, annual allowances on holiday lets to historic pieces of art is covered by the different reliefs.
These wide variety of reliefs and exemptions hold many traps for the inexperienced or unwary. Inheritance Tax planning is complicated; it can be unfair, and at times surprisingly arbitrary.
It’s not getting any easier. The Conservative Party pledged in its manifesto to introduce a new £175,000 transferable residential property allowance given to children or grandchildren. There is no doubt that this will reduce the burden on many households and so at least it is a step in the right direction. Like the nil rate band transferable allowance it will need to be claimed leading to further complications.
It would seem that a better way to reform inheritance tax would be to overhaul and simplify the tax relief system. This review is already under way but bearing in mind the lack of tax income at present the review is unlikely to produce many benefits for those people whose assets exceed one million pounds.
If you are in this position and would like to hold a no cost no obligation meeting to determine how you can save your family significant amounts of inheritance tax please call or email us.