Inheritance tax changes a ‘lever Treasury could pull’ as more families set to be hit

Inheritance tax: Financial advisor provides advice

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Commonly referred to as “death taxes” inheritance tax is charged at 40 percent and is already one of Britons’ most hated taxes. However, with property prices continuing to rise, it could be about to get a whole lot worse as thousands more will be caught in the net.

Liz Ritchie, partner at tax and advisory firm Mazars said: “We can expect to see this soar further in the coming years as thousands more homeowners are dragged into paying tax on their estates.”

Laura Suter, head of personal finance at AJ Bell, said things could get even worse if the Chancellor makes changes to inheritance tax in his spring Budget.

She said: “If the Chancellor wants to raise money from wealthier people, he could turn his attention to taxes paid on death.

“Pensions can currently be passed tax-free on death if the person dies before age 75, and at your recipient’s marginal rate of income tax if you die after age 75.

“Applying a tax to inherited pensions would clearly raise much-needed cash for the Treasury, although how much would depend on whether a protection regime was introduced for existing funds or not.

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Ms Suter continued: “If it wasn’t, those who have paid into pension on the basis of the death benefits on offer would understandably feel angry at the rug being pulled from under them.

“Inheritance tax is the other lever the Treasury could pull, either by increasing the current 40 percent rate or lowering the amount that can be inherited tax-free.

“Both measures would inevitably lead to ‘death tax’ headlines, however – not something politicians generally welcome.”

However, there are some things people can do to pay less taxes.

Married couples and civil partners can double their allowance to £650,000 by passing on their property to each other when one dies.

People could also set up a trust to reduce how much IHT someone has to pay.

Gifting is also considered to be one of the best ways to reduce IHT as it can help mitigate tax as well as passing wealth on to loved ones.

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It’s also a good idea to make the most of cash allowances – people can gift up to £3,000 per tax year.

As the wedding season approaches, it’s also worth bearing in mind that taxpayers can give wedding and civil partnership gifts.

They can also carry over an allowance from a previous year if it’s not been used already.

For example, a parent could gift their child up to £11,000 tax free in one year – a £5,000 gift made in consideration of marriage plus this year’s £3,000 annual exemption and last year’s if it hasn’t been used already.

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