It has been the hottest topic in the political debate in the United Kingdom recently.
The Prime Minister, Rishi Sunak has announced that the UK government is considering abolition of the inheritance tax (IHT) from as early as the next year.
This is most probably the most hated tax of all, even though it affects no more than 4% of the population of the UK. The tax rate as high as 40% of the estate value above the tax-free amount of £325,000.00 (£650,000.00 for married couples and civil partnerships, is called by many a rip-ff.
It is important to remember that for the tax system purposes, cohabiting partners are treated as two single persons, and the privileges and reliefs available to married couples and civil partners do not apply to them.
The discussion about the inheritance tax is, in my opinion, very much a by-product of the Prime Minister’s speech. Given the rising property value- especially in London and the South-East of England, the perspective of having to pay the tax becomes a real threat for more and more people.
Annually, the HMRC receives around £8 billion from this tax and the amount is higher every year.
TRIVIA: What was the average amount of tax paid in 2020-2021 in London? It was £279,200.00!!!
An impressive sum for most of us.
Those against the inheritance tax put forward the argument that it is a re-taxation of wealth obtained from previously taxed funds. It is also argued that the number of exemptions and reliefs and the complexity of the system for calculating the tax due mean, that the wealthiest people will find ways to minimise the amount due or avoid it altogether anyway.
The Labour Party representatives have accused the Prime Minister of a dangerous attempt to drain the State budget, even though IHT makes up for only 1% of the total UK budget revenues. There have been also accusations of making attempt to “buy” voters’ support ahead of the next year’s UK general elections.
What are the proposals then?
Considering that the current tax-free amount has been “frozen” until the tax-year 2027-2028, th e sensible voices have called for it to be raised to £500,000.00 for individuals and £1 mln for married couples and civil partners. Others suggest one flat tax rate of 20% with removal of most tax exemptions and reliefs at the same time.
Attention is also drawn to a privileged position of married couples and civil partnerships against cohabiting partners.Financial advisers report a very positive response of their clients to the Prime Minister’s plans, but most are aware and agree with the Ministry of Finance officials’ view, that the change will not happen overnight and will not be radical.
We must therefore be patient and wait for events to unfold, and when planning the disposition of our estate upon death, we should make use of the knowledge and skills of professionals, thus avoiding unwanted bills from HMRC.
Umbrella Protect Wills Team
