There is no doubt that in the UK Inheritance Tax is not a universally popular tax.
Many taxpayers are unhappy that the wealth they have accumulated during their lifetimes will already have been taxed as it was earned, and there is a strong feeling that to tax assets twice is simply not fair.
Several countries do not currently have an Inheritance Tax or Estate Tax system – e.g. Australia and New Zealand. In the USA, rates are less than in the UK and at present only estates in excess of $5.45 million (or $10.9 million per couple) pay tax and it is estimated that only 0.2% of estates actually pay estate taxes at present. Italy did abolish Inheritance Tax but then reintroduced it. In many other European countries the tax has been abolished or conversely in fact is a bit more penal than the UK system. Some countries have a system whereby the rates of tax vary depending on the relationship between the person who has died and the beneficiary.
In 2015/16, Inheritance Tax raised £4.7 billion for the UK Treasury and it is forecast that this will rise to £5 billion in the current tax year. It is estimated that only 4% of estates will currently pay the tax. However, if Inheritance Tax was abolished this is a sizeable sum that would need to be replaced through increases in other taxes which are likely to affect more people and be less popular.
Those who favour keeping Inheritance Tax (as opposed to say, increasing Income Tax rates) point out that there are generous tax exemptions for business and agricultural assets to allow enterprises to continue after someone has died. There are also exemptions for gifts to charity. Only estates in excess of £325,000 are liable to the tax (though there are rules to take into account some lifetime gifts and assets held in Trusts).
There is also a new residence allowance available (albeit with strict qualifying conditions) that gives further tax reliefs where an individual’s residence passes to children/grandchildren (or other qualifying descendants).
By 2021, in many circumstances married couples will be able to pass £1 million tax free to their family which supporters of Inheritance Tax feel is more than fair.
However, other than the introduction of the new residence allowance the Inheritance Tax threshold has been frozen at £325,000 since 2009 and there is no doubt that many more estates are coming into the net of Inheritance Tax as property prices grow. Individuals who do not have children to pass their properties to are most likely to suffer more Inheritance Tax in the future.
Whatever your own view is it looks like we will be stuck with Inheritance Tax for some time to come and if you want to talk to us about legitimate means of planning to minimise your liabilities we are always happy to do so.