Summer Budget 2015: Saving the wealthy from record IHT rates?

Last week, it was revealed that HM Revenue & Customs took in a record £379m worth of inheritance tax (IHT) in April, but with the Tories today confirming a more lenient approach to the tax in Wednesday’s Summer Budget, what is the future price of passing down wealth?

Summer Budget 2015: Saving the wealthy from record IHT rates?

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A tax crackdown

Rachael Griffin, financial planning expert at Old Mutual Wealth, said the ability to pass on some value to the next generation is a high priority for many in retirement.

“With IHT thresholds as they are, many more families could find themselves hit with large tax bills on receipt of an inherited property,” she said. “If the Conservative plans to introduce an additional allowance for property are introduced, more of them will be able to pass down their family homes in full.”

As the leniency applies to estates worth up to £1m she added that many retirees will be tempted to stay in their family home rather than downsizing, in order to mitigate their tax bill.

“What the proposal could also offer is the chance to protect more of your assets from IHT by loading it into property,” she said “This could mean we see many people looking to upsize in retirement as they seek to pass on as much of their wealth as possible.” 

She added that the rise in IHT could also be linked to HMRC’s crackdown on tax avoidance schemes, which may have resulted in more tax being payable to the Revenue through IHT.

“However, there are still legitimate tax planning opportunities available to advisers and customers which help reduce any IHT liability,” she said.

 s monthly  tax since 2005 HMRC’s monthly IHT tax since 2005

 

Pension limits

Osborne and the PM als confirmed today that the increase in IHT exemption on properties worth up to £1m will be funded by reducing the maximum annual tax-relievable pension contribution for those earning above £150,000, limiting the maximum lifetime pension fund to £1m until at least 2018.

Steven Cameron, regulatory strategy director at Aegon said that while reducing the tax free pension allowance to increase IHT relief would only affect the wealthy, it does question the Government’s attitudes towards property versus pensions.

“With the prospect of it being acceptable for main residential properties of up to £1m to be passed on by parents to their children tax free, surely reducing the maximum pension fund to £1m, when it is designed to fund an income throughout decades of retirement, looks far too restrictive,” he said.

“While the reduction in annual pension allowance for higher earners is disappointing, we hope the Chancellor will not make matters worse by also reducing the pension lifetime allowance included in the Conservative’s pre-Election manifesto.”

Whatever happens in Wednesday’s budget, it is likely to signify the beginning of an era where complexity necessitates financial planning for the wealthy.

Budget focus

Last month, international law firm Withers gave International Adviser their six tax predictions for this week’s Budget. These included:

  • An increase to the remittance basis charge for obtaining non-domiciliary status to more than the current £90,000;
  • An increase to the IHT threshold for married couples to £1m without fully increasing the nil rate band;
  • Further measures against tax avoidance;
  • Continued restriction on tax relief for contributions for higher rate taxpayers;
  • A lowering of income tax thresholds; and
  • An increase to capital gains tax.

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