Hated ‘death tax’ hammers hard-up and grieving Brits Get tomorrow’s for JUST 50p

BRITONS are sinking under the weight of so many taxes that it is easy to overlook the damage inflicted by the most hated of them all, inheritance tax.yet IHT is on course to take an ever greater share of our wealth, as Chancellor Rishi Sunak has frozen the thresholds at which people pay until 2025/26 at least.

Rising house prices and the stock market boom of the last decade are dragging more ordinary people into the Treasury’s net.

IHT is hated because it hits families when they are down and eats into the wealth loved ones have left behind, with a punitive flat tax rate of 40 per cent. Last year, the average bill was a staggering £210,000, with more than 20,000 families paying up.this year the total bill is set to top £6billion.

Increasingly, ordinary middle-class families foot the bill, while the wealthy wriggle out of paying it.

John O’connell, chief executive of the Taxpayers’ Alliance (TPA), said the death tax is “distortionary and deeply unfair”, so it’s little wonder it’s so unpopular. “Coughing up for a huge IHT bill is a horrible thing for grieving families to deal with, and the current low threshold hits hard-working households.”

DOUBLE BLOW

Effectively, IHT is taxing families twice, as they may already have paid income tax, National Insurance and other levies such as capital gains tax on that wealth.

O’connell is calling on the Government to “ditch the death tax”, saying this is a levy that only the very wealthy should pay.

Incredibly, the threshold at which IHT kicks in has been frozen at £325,000 since 2009. Homeowners can pass on a further £175,000 of wealth in the family home, under the main residence allowance.

However, this can only go to direct descendants such as children and grandchildren.

In theory, married couples and civil partners can pass on £1million in total, but in practice the sheer complexity of the system confounds many.

O’connell would like everything made clearer by lifting the IHT threshold to £1million, with everybody having that simple allowance.

It would apply whoever inherits your wealth, whether a spouse, civil partner, cohabiting partner or other family members or friends.

This would end the unfairness where the country’s growing army of six million cohabiting couples get less generous tax treatment.

In contrast to married couples and civil partners, they cannot inherit each other’s IHT allowances.

SIMPLER AND FAIRER

O’connell would like to see IHT scrapped altogether but admits that this may be too much to ask of today’s cash-strapped Treasury. “Our proposal means that only millionaires will pay. It will also simplify what has become a highly complicated tax.”

It would reduce the number of estates forecast to pay by half in the current tax year, from 21,052 to 10,483, while only slightly reducing the tax take,tpa figures show. “If IHT was payable only on estates worth more than £1million, the estimated revenue would still be £5.5billion this year, a drop of just £850million.”

Some argue that IHT is a muchneeded way of redistributing wealth but in practice, the super-wealthy can afford to hire expensive financial advisers to reduce their exposure, often right down to zero.

It is also easier for them to give away their wealth early in life, using the seven-year potentially exempt transfer rule, said Paulwilcox, chairman of financial planners WAY Trustees. “If they live for that long after gifting money, it loses all IHT liability.”

Ordinary people need every penny to fund their own retirement as living costs surge. “As a result, IHT catches all the wrong people,”wilcox said.

HOUSE SHOCK

Families in London and the Southeast, where property values are highest, are hardest hit.their numbers will grow, as the latest Halifax house price index shows the average home now sells for £289,099.

That is only £35,901 below the nil-rate threshold. All it would take is a 12.5 per cent growth to push the average home into the clutches of HMRC, unless it is passed to direct descendants. “Inheritance is a form of double taxation,” Wilcox said. “It mainly hits taxpayers who have worked hard and paid plenty of taxes in their lifetime.”

He said it can have a devastating impact on unsuspecting taxpayers at a time when they feel least able to fight it. Rules introduced piecemeal over the years to close “alleged” loopholes have made IHT too hard for most people to follow.

WAY offers wealth protection schemes to help families reduce their exposure. “Unless people take advice they will struggle to navigate tax planning rules,”wilcox said.

‘Ordinary people need every penny to fund their own retirement as living costs surge’

TIME FOR COMPASSION

In July 2019, the independent Office for Tax Simplification (OTS) suggested a number of rule changes to make the IHT system fairer.

Last year, the Treasury ruled against making all but a few technical changes, saying it will leave IHT as it is. “There is nothing gloomier than taxing death,” said O’connell. “The Government should raise the threshold to £1million to show a more compassionate attitude towards grieving families.”