Does Inheritance Tax only impact the wealthy? Even Rishi Sunak is interested in abolishing Inheritance Tax.
Despite the small percentage of people who must pay Inheritance Tax, it is still widely disliked and over the years there has been talk about cutting the tax altogether or asking for a reform. Once again, the idea has resurfaced in Number 10.
How Many People Are Paying Inheritance Tax?
Although there is only a small amount of people required to pay Inheritance Tax, that number is on the rise. Figures from the HMRC show that in the year of 2020 to 2021, 27,000 estates paid Inheritance Tax.
An estate can include property, assets, and other valuables that one may own. The 2020 to 2021 figure is up 4,000 from the year prior.
How Much Are They Paying?
Inheritance Tax is charged at varying rates dependant on location and a variety of other factors. Presently, in the UK, Inheritance tax is being charged at 40%. This applies to estates that are worth more than £325,000. However, there are allowances for this to ensure it is only paid on the most valuable estates and when planning ahead, there are some other workarounds too.
Sunak’s goal is to work towards eventually abolishing the tax. The 2020 to 2021 figures from the HMRC also showed that £5.76bn was accumulated from that tax year alone. That number was larger than usual. But even though Inheritance Tax figures are on the rise, so are other taxes such as Wealth and Capital Gains.
Who is Paying Inheritance Tax?
Usually, those with estates valued over £500,000 would be required to pay Inheritance Tax. But with the help of a financial adviser, knowledgeable of the tax system, tax liability can often be limited.
For example, a possible benefit for some could be that gifts under £3,000 in value can be given tax-free. The wealthy may benefit from this if they have a pricey family heirloom to hand down.
Inheritance Tax bills are set to rise though and some people may find themselves to be caught out. Unfortunately for many, recent research from Wealth Club, the investment service provider, suggests that the amount of people paying Inheritance Tax could be increased by 50% within in the next decade, with £9bn being generated by 2029.
Who Would Benefit From the Tax Cut?
As of 2009, Inheritance Tax bands have been frozen and are not due to be revised until 2028, despite prices having wavered significantly since then. In turn, this means that many people who may not consider themselves to be in that ‘wealthy’ bracket may find that they have now fallen into that Inheritance Tax band. This is largely due to inflation and growing house prices. It is these people who will benefit from either the band being updated sooner rather than later or from Inheritance Tax being cut altogether.
Will I be Impacted by Inheritance Tax?
To ensure that you are not caught out unexpectedly by Inheritance Tax it would be beneficial to look into some Financial Planning with an expert. Contact one of our Wealth Managers today to discuss your Inheritance Tax and other financial concerns.