Inheritance tax is set at 40 percent and is charged on the value of a person’s estate above a certain threshold when they pass away. With the Budget mere days away, tax rises have been speculated as a way for the Treasury to claw back some of the funds spent on supporting Britons throughout the pandemic. Inheritance Tax is one levy which has been lined up for potential change, and individuals may need to brace for an alteration.
“For example, the £3,000 annual exemption, or the small gift allowance of £250, which many people talk about. But the big one is specially for wealthier savers is that you can give away as much of your surplus income as you wish, as long as it doesn’t reduce your standard of living.
“Wealthier individuals and those with high investment income, for example in their pension in retirement, could reduce their IHT bill by gifting surplus income to ensure it is out of the estate on day one.
“Although there are some rules, such as giving a gift of a regular and similar amount, for many this could be useful – grandparents could pay school fees or help with a mortgage.
“Of course, the other key way is that you can give as much of your income as you wish – as long as you live for seven years under the IHT rules.”
But while allowances can help many individuals in planning and managing their IHT bill, changes in the Budget could be afoot.
While Ms Ross does not feel it is likely the Chancellor would increase the rate of Inheritance Tax, other alterations could have similar implications.
She continued: “It may be these allowances are all rolled up into one annual allowance and that is it in terms of what the Treasury wants.
“While this approach could simplify Inheritance Tax, for those who are using the surplus income allowance in particular, that will mean massive changes.”
A change to allowances and gifts could mean Britons are forced to adjust their approach for preparing their estate for their loved ones.
Inheritance Tax rules currently lay out a number of allowances which can help Britons to give away wealth legally without being subject to taxation when they die.
Of course, a hefty tax bill will mean a person’s beneficiaries could receive less than an individual intended, so planning ahead is often viewed as key.
However, Ms Ross concluded by issuing a warning to those who are anxious about what next week’s Budget may bring.
She urged people to take ample time to consider their options and not to act in haste because the economic event is just around the corner.
Ms Ross stated: “Don’t rush and give away money you might need. You first of all have to be sure that this is money you can afford to give away.
“But at the same time, there may be people who planned to do this anyway.
“Parents could want to help children onto the property ladder, or even as of late help with a mortgage. But I’d say if you were going to do it, then do it. Do it now before the Budget happens.
“A lot of people have been procrastinating and saying they are going to get around to it, and if you fall into this bracket, then you should definitely act and get a move on.
“I do think at some point, even if it doesn’t happen imminently in this Budget, we will see the Chancellor look at and review Inheritance Tax as it currently stands.”
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