With Government debt levels at record highs, it seems inevitable that tax rises in some form are on the way. Ahead of next week’s Intergen 2020 event, Sam Jermy talks to us about just what this might mean for inheritance tax planning, as well as some practical steps planners can take in all this uncertainty.
With a number of vaccines for Covid-19 supposedly nearing readiness for distribution, the world is hoping we may soon pass the worst of the global pandemic. This leaves the Government with the slightly awkward question: How are we going to pay for all the support we provided?
There are many avenues they could pursue, and a wide range of ideas have been suggested by various interested parties.
So far, inheritance tax has been broadly kept out of the mainstream spotlight when discussions have arisen around where to raise the extra capital. While this is liable to change at any moment, it does have one advantage over other taxes: It is one of the most unpopular taxes in the UK, and so a rise here could prove especially unpopular.
According to Sam Jermy, Business Development Director at TIME Investments, the whole conversation around inheritance tax is a political hot potato – and he points out that it took the Conservative Government years to bring about some of George Osborne’s aspirational promises about raising the nil-rate band after it got elected.
Speaking exclusively to IFA Magazine before his Keynote presentation entitled ‘What the future holds for Inheritance Tax’ which will happen next week at Intergen 2020. Intergen 2020 is the online forum for wealth, tax and estate planning viewed through the lens of intergenerational changes. Jermy points to two reasons for this.
- It is viewed as creating excessive amounts of administration at a time of bereavement. Of the 275,000 estates that completed their IHT forms each year, less than 24,500 ended up paying IHT.
- It is viewed as unfair. Large estates generally pay a lower amount, proportionate to their wealth. Estates worth £1 million to two million generally pay an average effective tax rate of about 20%. As estates get larger they have a better ability to shelter their wealth from IHT, and are able to pay a lower effective tax rate (down to about 10% in many cases).
While it may be unpopular, it has become an increasingly important source of Government income as time has gone on, generating around £5 billion for each of the last three years.
At the moment, we simply do not know where the Government is planning on looking to raise the extra capital it will need to balance the books. Looking at hints from before the pandemic hit, Jermy says there were suggestions the Government was contemplating bringing CGT into alignment with income tax, and around corporation tax, but as these were from before the pandemic, it is hard to say if this will stay the same.
While we don’t know if the Government is planning to increase funding through IHT, there is a chance they may look to alleviate some of the administration pain the tax causes with some simplifications to its rules, or possibly looking at business relief rules, and there have been calls to do so from different areas of the Government.
Unfortunately, this leaves estate planners with a great deal of uncertainty about what the future holds for IHT – something that makes planning an inherently riskier subject. At Intergen 2020, Jermy will offer his insights and some practical solutions to help advisers give the most appropriate advice with the current information we have.