Is Inheritance tax back on the political agenda?
Few taxes attract the level of irritation that inheritance tax does. Maybe it is the element of double taxation or maybe it is the 40 per cent charge on assets over the nil-rate band.
The fact the threshold for IHT has increased at a much slower rate than house prices has added to the dislike of the tax. While house prices have grown by 98 per cent in the last 10 years, the IHT threshold has increased by 38.8 per cent.
Is IHT designed for the super-wealthy?
There is still a feeling that IHT is a tax designed for the super-wealthy but that the Government is benefiting by allowing more people with few assets outside a large house, to be caught by the tax.
For this reason, IHT takes on real political significance. One of the Tories pre-election pledges was to increase the individual threshold to £1m, with their 2010 general election manifesto
IHT reform was one of the Tory casualties of the coalition agreement last May, being ditched to make way for the LibDem policy of increasing the income tax personal allowance towards £10,000 to lift the lowest paid out of the reach of income tax.
It looked like the question of IHT reform had been taken off the political agenda. However, there is a chance that it might sneak back in.
The Mirrlees review of tax carried out and published in November 2010 recommended that IHT be overhauled and the current system be replaced with a more straightforward tax on the transfer of assets.
Is the current UK Inheritance Tax unfair?
The report says: “The current UK Inheritance Tax is unfair in many ways – and leads to some asset classes, such as agricultural and business assets, being tax favored for no clear reason except, presumably, the influence of the agricultural and family business lobbies.”
There have been further calls for an overhaul of the current IHT rules following the publication of the Office of Tax Simplification review of tax reliefs earlier this year.
The Office of Tax Simplification was set up by the Treasury specifically to review the numerous tax exemptions that have built up over the years and draw up a list of recommendations of which could be scrapped. One of the five key themes’ of the tax simplification report was that the Government should look again at the IHT regime.
The report said as the system of reliefs is inextricably linked to the tax itself, and due to the unfairness of who ends up paying IHT, the whole tax needs a thorough review.
The report concludes: “In the light of all this, our conclusion is that there should be a proper review of inheritance tax, whether by HMRC, HM Treasury or the OTS. This would clearly be a longer-term project. In short, this is a tax that needs a top-down review.”
For a tax that attaches so much dislike, it affects a surprisingly small number of people. According to figures from the Office of Tax Simplification, just over 2 per cent of all estates paid IHT in 2009. Still, it seems that many people still pay some form of death duty needlessly.
Figures from unbiased.co.uk suggest that £1.3bn is paid every year needlessly by people who do not take relatively straightforward action to militate against the tax.
Vast sums are being paid unnecessarily in inheritance tax every year because the deceased had not made adequate provision. With the IHT threshold frozen for another three years, it is important to make sure your financial affairs are in order to protect your family and loved ones.”
Until the system is overhauled, it seems that there is plenty of scope for specialist Estate and Inheritance tax adviser like Bluebond to help clients cut down on their bills for what is described as an optional tax.