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Millions of Homeowners Will Be Caught Out by Inheritance Tax Trap

Contributed by Digital Media Circle
May 28, 2014

Inheritance tax is now a 'mass market tax' to be paid by millions of homeowners as the price of properties soar, economists have warned.

A Mass Market Tax

Recently published statistics have shown that soaring property prices are carrying a real sting in the tail, pushing thousands of families into the inheritance tax (IHT) bracket for the first time. Originally a 'rich man's tax', many ordinary householders are now in the taxman's sight too, with anyone owning a property valued above £325,000 likely to bequeath their loved one with an IHT bill, totalling tens or even hundreds of thousands, when they pass away.   

The inheritance tax threshold is currently set at £325,000, with any surplus taxed at 40 per cent. This figure has remained unchanged since 2009, despite the fact that property prices have soared by 30 per cent over the course of this five-year period. Worse, the IHT threshold is set to be frozen at this amount until 2019, despite the revival of house prices, and hints by the Prime Minister that he would like the threshold to be set at £1 million. The freezing of the nil-rate band will mean that more money finds its way to the taxman unless people take the right action to mitigate their potential IHT liability. 

A Detested Tax

There is good reason for people to feel that such a tax is unjust. Nigel Green, chief executive of financial advice group deVere explains: "It is, in effect, a double form of taxation. People have paid taxes on their income, savings and investments all their lives. Not unreasonably, they want these assets to go to their heirs and not the Government."

Fortunately, there are many ways to mitigate your IHT liability, but experts urge that those concerned about paying IHT don't leave it too late to start planning. "The earlier you begin, the more options you have," Green says.    

Avoiding Paying Over the Odds

Married couples and registered civil partners are fortunate in that there is no IHT to pay when one partner dies. Better still, the deceased partners can pass their £325,000 allowance to their partner when they pass away, doubling the remaining partners tax-free threshold to £650,000.

In the majority of the cases, the family home will be a person's most valuable asset, and will be the main reason they are taxed for inheritance purposes. Even for those who don't wish to sell, this decision is often forced upon them by the receipt of their tax bill, posing a major problem for families wishing to retain their parents' or grandparents' home.

Carol Cummins, IHT specialist at law firm Clarke Willmott LPP suggests that an effective way of avoiding IHT is to downsize to a smaller, cheaper property and pass the surplus proceeds to loved ones before death. However, many older people are reluctant to move as they love their home, and don't want to incur the expense of conveyancing bills, estate agency fees, removals costs and stamp duty on a new property, nor go to the effort of moving.

However, there are ways to avoid an IHT bill for those savvy enough to think about it beforehand. Before embarking on these, it is advised that you take specialist tax advice from a wealth management service. A quick google search will reveal plenty of companies providing information about their services and contact details, such as       

The simplest option is to slowly whittle away IHT liability by making yearly gifts to loved ones. Gifts of up to £3,000 can be awarded to chosen beneficiaries, and these are exempt from IHT upon death. For married couples, the allowance is doubled to £6,000, which means that the size of an estate can be reduced by £60,000 in ten years, saving beneficiaries £24,000 in tax.   

Don't pay over the odds simply because you think you have no choice in the matter. If you would prefer your money in the hands of beneficiaries of your choosing rather than the taxman's coffers, get in touch with a wealth management service and ensure that you have control of your finances even when you're gone. Inheritance tax is now a ‘mass market tax’ to be paid by millions of homeowners as the price of properties soar, economists have warned.


Tags: tax | pensions | inheritance tax | Tax | stamp duty | investment | fees | services | law



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