Growing Number of Families are Falling into the Death Duty Trap
Growing Number of Families are Falling into the Death Duty Trap
Figures from the Office for National Statistics indicate that rising property prices mean more families are becoming liable for inheritance tax, particularly in London and the South-east. Receipts are forecast to hit a record high of £4.6bn in the 2015-16 tax year, an increase of 21% on the previous year’s £3.8bn – and the numbers of families who will be affected can only rise with the Inheritance Tax (IHT) “nil-rate band” frozen until 2021 at today’s £325,000, or £650,000 for married couples.
Assets above this amount, including one's home, may be taxed at 40%.
From April 2017 a new, higher threshold including a “family home allowance”, will begin to be phased in.
This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.
This means that married couples will be able to pass on estates worth up to £1m to their direct descendants, including a family home by 2021.
For information on inheritance tax and estate planning, wills and trusts, probate disputes or other issue please call our experienced lawyers on 01494 790002. Alternatively, email us at estatemanagement@ibblaw.co.uk.
'Penalised for dying early'
Campaigners have said that the almost 30,000 families paying inheritance tax in the two years from April 2015 because of the increase in property prices and a spike in winter deaths should be compensated because the government has taken too long to implement the new higher threshold.
Analysis undertaken for the Daily Telegraph suggests that an estimated 28,000 families are set to pay death taxes of up to £80,000 between the date of the government announcing the new and more generous inheritance tax rules in last year's Budget, and April 2017 when the changes are being brought in.
This is based on the latest available HMRC data from 2012-13, in which around 14,000 deceased homeowners whose estates paid IHT would have also qualified for the new residential allowance, potentially reducing their IHT bill to zero.
Projections from the Office for Budget Responsibility reveal the number of family estates on which inheritance tax must be paid has quadrupled since 2010, with the number up from around 10,000 to more than 40,000 this year.
A HM Treasury spokesperson said: “The government wants families to be able to pass on their home to their children or grandchildren . . . That’s why we’re reforming the rules to bring down the number of families paying inheritance tax, with over 30,000 estates taken out of paying inheritance tax in 2020-21 alone."
Baby boomers who blow their children’s inheritance
A new study suggests that most so-called baby boomers are planning to spend their money rather than pass it on to their children.
Two-thirds of baby boomers said that they did not plan to bankroll the future security of their children – at a moment when their offspring are increasingly reliant on being able to inherit their parents’ money and property in order to retire.
The study found that pension contributions of offspring in the 18-34 age group will be lower than their savings when retirement comes. Meanwhile, among the over-55s, 80% list pensions as their primary source of income during retirement. And research by the Resolution Foundation think-tank suggests that earnings for people aged 28 were less in real terms than for their predecessors of a decade ago.
Nearly half of adults (48%) admitted that they have not discussed the contents of any will with the people they expect to inherit from. This figure rises to 79% among those aged 18 to 24, with only one in five having such conversations with their relatives.
People often expect – and rely upon – a potential inheritance from parents or grandparents and in many cases are let down by the contents of the will. This can lead to disputes about inheritance which can rapidly deteriorate into protracted court proceedings which may divide families for generations.
Wills, Trusts and Probate Experts
It is important to have an up to date will as this may provide opportunities to reduce IHT. In addition, there may be other ways in which IHT can be reduced so long as planning is undertaken in good time.
For information on inheritance tax and estate planning, wills and trusts, probate disputes or other issue please call our experienced lawyers on 01494 790002. Alternatively, email us at estatemanagement@ibblaw.co.uk.
