23 December 2020
2020 has been an expensive year for the UK government; seeing a debt so far of nearly £215bn which is expected to rise to £394bn before the end of the financial year. Compared to the £55bn which the government expected to borrow this is substantial to say the least.
At some point this will need to be paid back, and needless to say, the government will be looking for easy ‘quick-wins’ in regard to recouping some of that money in the spring budget.
Of course, at this stage it is all speculation but it is better to be forewarned so you are able to protect yourself and make informed decisions regarding inheritance and gifts to loved ones.
A number of changes in UK Inheritance Tax have been suggested by the All-Party Parliamentary Group (APPG).
These proposals, if enacted, would on their own have a real impact on an individual’s IHT liability as asset values are affected by inflation and the value of the property inevitably increases and therefore so does the IHT due. This is likely to be the case even for many US citizens who are also liable to US estate tax given the current $11.6 million threshold per person there.
It is however also suggested that the UK Inheritance Tax Threshold rate is reduced to 10% on estates of up to £2 million and 20% on amounts over that threshold.
The rules regarding lifetime gifts, also known as Potentially Exempt Transfers (PETs) are also under review. At present you are able to give a gift to a loved one free of IHT if you live for another seven years.
Instead in 2021 this is likely to be replaced with a lifetime inheritance tax charge of 10% when a gift is made where the gift exceeds £30,000.
Another relief often used in estate planning is gifts out of surplus income. This allows individuals to pass on amounts from their annual income that they do not need to meet their living costs, free from IHT. This relief has also been identified by the APPG as one which should be removed
Perhaps more controversially, the APPG have recommended the abolition of both Business Property Relief (BPR) and Agricultural Property Relief (APR) which at present are both means of passing on assets without the risk of inheritance tax. On top of recent changes and further proposals regarding CGT reliefs available in connection with business assets, entrepreneurs may feel that 2020 has not been a good year from a tax perspective and question if Britain is “open for business”. US citizen business owners will be more familiar with this situation given no relief is available for US estate tax purposes on such assets.
According to the All-Party Parliamentary Group (APPG) Inheritance Tax and Intergenerational Fairness who made the suggestions, removing the reliefs and introducing the flat rates makes inheritance tax easier to understand. However, these changes are likely to bring in a lot of extra revenue for the government but may not be quite so beneficial for you and your family following your death.
Although none of these changes are certain yet, it doesn’t hurt to actually start the conversation to see what can be done to ensure you pay appropriate tax which is still beneficial to you and your estate. It could be that if you are considering a substantial gift to a loved one, you decide to do this sooner rather than later before the tax changes come in.
Some of these changes, if taken forward by the Government, would result in a very different type of estate planning than has traditionally been the case.
For US citizens in UK, this will be equally important, especially whilst the US estate tax exemption remains at its current high level.
To discuss all the available options, give our team at Everfair a call today and we will offer advice on how these changes could affect you if they do come into place in the spring of 2021.
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