Often referred to as Britain’s ‘most hated tax,” inheritance tax (IHT) could be in for a shakeup post-COVID-19.
The 2019 -20 tax year raked in some £5.2billion from the death tax, a slump of £223million (4 percent) from the previous tax year. Rising property prices in many parts of the country and an IHT threshold has made this tax a reliable revenue earner for HM Revenue and Customs.
Current speculation is rife
At present, inheritance tax is 40% tax applied to estates worth over £325,000 – or more if a home or the sale proceeds of a home are included.
Yet financial industry experts are divided, with some speculating that the Chancellor may use this IHT tax as a way of getting money back into the Exchequer despite the fact that Business growth could be stifled by tax rises
Others believe the proposed recommendations by the All-Party parliamentary group proposing the replacement of IHT with a tax on lifetime and death transfers of wealth, with very few reliefs and a low flat rate, between 10 percent and 20 percent is on the cards.
The nitty-gritty of inheritance tax
Simply put, according to Gov.UK inheritance tax is the tax on the estate (the property, money, and possessions) of someone who’s died.
There is normally no inheritance tax to pay if your estate’s value is below the £325,000 threshold or if you leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club.
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold can increase to £500,000.
If you’re married or in a civil partnership and your estate is worth less than the threshold, any unused threshold can be added to your partner’s when you die.
This means the surviving partner’s threshold can be as much as £1 million.
Probate and inheritance tax
When a loved one dies, it’s not only IHT but all the tricky legal requirements that come into play. If you are nominated to be an executor of an estate you need to read What is probate? A no-nonsense guide from AFG Law. Afterall the onus rests on you to organise and disperse the deceased’s assets according to their legal wishes. This is known as probate.
If you live in Scotland, probate is known as ‘confirmation’.
Closing bank accounts, selling the deceased’s property, transferring the property to beneficiaries, selling shares, or closing investment accounts all falls to you.
In this guide, you will get a better understanding of the process of probate. How probate works, what documentation is required, IHT returns, the challenging of wills, and beneficiaries’ rights.
The road ahead
And while only time will tell if there will be any finite changes to Inheritance tax post-COVID-19, it is more important than ever to review and customise your estate plans. As potential changes could affect your family’s finances for generations to come.