The last thing you want to be worrying about, either as someone leaving wealth behind to loved ones or as a loved one facing the loss of a family member, is the amount of tax placed on inheritance. With this is mind, the news that we are at a 35-year peak for the highest levels of inheritance tax will be unwelcome news.
The news comes only two years after Prime Minister David Cameron told the public that inheritance tax should only be paid by the rich. 1979-80 was the last time tax levels on inheritance were so high, with Margaret Thatcher at the helm. Back then the percentage stood at 75% on assets over £25,000.
It’s thought that over 40,000 families will face tax on inheritance, with the figure climbing over the next few years. The reason so many families could be taxed is thought to be down to the housing market. Where many people leave property in their wills, the fact that house prices have continued to rise over several decades means many people now slip into the taxable bracket.
The figure of 2.6% deaths in 2009-10 being liable for inheritance tax has risen dramatically, standing at roughly 7.1% right now and estimated to rise further to 8%.
Why the high rates?
Some have claimed that the rise in tax on assets left behind after a person’s death has been a cash grab for the Tories, particularly after the economic crash in 2007. However, Chancellor George Osborne has outlined plans for a new relief programme to take effect from 2017. This relief shapes up to put the family home in a tax-free, transferable position, with the amount estimated to be £1m when a couple jointly passes on a home to those assigned as their heir in their will.
Back in 2014 it was reported that the UK had the second highest inheritance tax rate in the world, behind only Ireland. This news could be a driving force behind the Conservative government’s plans to introduce tax-relief, but still looks somewhat harsh when numerous other countries have scrapped their inheritance tax altogether – Australia and New Zealand being the two notable examples.
What should I do with my will?
One trend which has emerged, as people try to shield their children from the heavy inheritance tax, is to “gift” property years before death. This has led to the suggestion that the high tax rate in the UK – because of the value of property which is inherited – is too high, with families who aren’t supremely well off fearing that their heirs will not see the benefit of their accumulated wealth.
With the turmoil surrounding inheritance tax, it’s always best to seek professional advice when organising your own affairs.