Red Rose Café Appeal for Ukraine

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Record Inheritance Tax bills Record Inheritance Tax bills are a reminder of the need are a reminder of the need for good estate planning for good estate planning

There are few more confusing – or unpopular – taxes than Inheritance Tax (IHT). In October 2019, HM Revenue There are few more confusing – or unpopular – taxes than Inheritance Tax (IHT). In October 2019, HM Revenue and Customs published Estimated and Customs published Estimated Costs of Tax Reliefs indicating further Costs of Tax Reliefs indicating further confusion and inertia as it expects to confusion and inertia as it expects to see a 19% increase in IHT revenues see a 19% increase in IHT revenues over the next four years. over the next four years. For older generations, paying up to 40% For older generations, paying up to 40% tax on what they leave behind is difficult tax on what they leave behind is difficult to contemplate. For some children and to contemplate. For some children and grandchildren, grappling with IHT is grandchildren, grappling with IHT is something they are ill-equipped to do. something they are ill-equipped to do.

Yet more and more families are having to deal with IHT. The latest figures show that IHT receipts reached £5.1 billion in the 2019/2020 tax year, according to an HMRC tax report published in May 2020. Although a fall of £0.4 billion from the previous year, this was likely due to the increase in the residence nil-rate band threshold, which has been introduced in stages since 2017-18. It will undoubtedly come as a shock to discover that a large proportion of your wealth, which includes the family home, investments including Individual Savings Accounts (ISAs), life assurance plans not in trust, and even old family heirlooms might actually have to be sold to meet the tax liability on death. The previous rises in receipts largely reflected the surge in residential property prices, as well as the recovery in other asset values, which has dragged more households into the IHT net. From April 2020, the residence nilrate band rose to £175,000, for those who qualify.

Yet more and more families are having to deal with IHT. The latest figures show that IHT receipts reached £5.1 billion in the 2019/2020 tax year, according to an HMRC tax report published in May 2020. Although a fall of £0.4 billion from the previous year, this was likely due to the increase in the residence nil-rate band threshold, which has been introduced in stages since 2017-18. It will undoubtedly come as a shock to discover that a large proportion of your wealth, which includes the family home, investments including Individual Savings Accounts (ISAs), life assurance plans not in trust, and even old family heirlooms might actually have to be sold to meet the tax liability on death. The previous rises in receipts largely reflected the surge in residential property prices, as well as the recovery in other asset values, which has dragged more households into the IHT net. From April 2020, the residence nilrate band rose to £175,000, for those who qualify.

Once considered a tax on the truly affluent, IHT now affects more estates than ever Once considered a tax on the truly affluent, IHT now affects more estates than ever

Coupled with the fact that up to the first £325,000 of an individual’s estate may be exempt from IHT, this will mean that, subject to certain conditions, a married couple and civil partners could have a combined tax-free estate worth £1,000,000 in the 2020/2021 tax year. Despite this, at the heart of this problem remains the simple fact that IHT could be considered a voluntary tax; the Treasury relies on inertia and people’s reluctance to confront the issue. The boost to the Treasury’s coffers is a reminder of the damaging

effect death duties can have on families’ plans to create and pass on wealth. There are many perfectly legitimate ways of mitigating IHT through foresight and careful financial planning. The mitigation of IHT does not require high-powered tax planning; only a willingness to discuss the issue, act and make use of the many options available, establishing trusts* where appropriate; and making use of annual exemptions such as gifting. The rules surrounding IHT on individuals domiciled in the UK – or resident – are complex. Certain transfers are also deemed exempt from the tax if they Coupled with the fact that up to the first £325,000 of an individual’s estate pass between a husband and wife or civil partners. may be exempt from IHT, this will mean If you are uncertain about where you that, subject to certain conditions, a stand regarding IHT and would like to married couple and civil partners could know more about how to minimise the have a combined tax-free estate worth sums falling into the hands of HMRC, £1,000,000 in the 2020/2021 tax year. or your local authority through longDespite this, at the heart of this term care fees, you should seek advice. problem remains the simple fact that The levels and bases of taxation, and IHT could be considered a voluntary reliefs from taxation, can change at any tax; the Treasury relies on inertia and time and are dependent on individual people’s reluctance to confront the circumstances. issue. The boost to the Treasury’s coffers is a reminder of the damaging effect death duties can have on families’ plans to create and pass on wealth. There are many perfectly legitimate ways of mitigating IHT through foresight and careful financial planning. The mitigation of IHT does not require high-powered tax planning; only a willingness to discuss the issue, act and make use of the many options available, establishing trusts* where appropriate; and making use of annual exemptions such as gifting. The rules surrounding IHT on individuals domiciled in the UK – or resident – are complex. Certain transfers are also deemed exempt from the tax if they pass between a husband and wife or civil partners. If you are uncertain about where you stand regarding IHT and would like to know more about how to minimise the sums falling into the hands of HMRC, or your local authority through longterm care fees, you should seek advice. The levels and bases of taxation, and reliefs from taxation, can change at any time and are dependent on individual circumstances.

* Trusts are not regulated by the Financial * Trusts are not regulated by the Financial Conduct Authority.

Conduct Authority.

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