Inheritance tax warning: Rishi Sunak’s assault on wealth ‘will hit many with hefty tax bil

Inheritance tax: Financial advisor provides advice

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While it is only paid by a small amount of estates, the amount taken in by inheritance tax has nearly doubled in a decade, from £2.9billion in 2011/12 to £5.2billion in 2020/21. Recent decades have seen more families caught in the inheritance tax net, as rising property prices push a generation’s homes into being affected. This has also not been aided by Chancellor Rishi Suank’s decision to freeze the threshold at which the tax is paid. The threshold will remain at £325,000 until 2026 –capital gains tax and the pension lifetime allowance thresholds will also remain in the same place until the same year unless the Government changes tack.

As the Telegraph reported last month, there are fears that wealth taxes could end up targeting more and more middle-income families.

Laura Suter of AJ Bell told the newspaper that freezing allowances until 2026 under the guise of supporting public finances in the wake of the pandemic was “a tax rise by the back door”.

Ms Suter added: “Inheritance tax is often seen as a tax only the wealthy pay. But with allowances frozen, more middle earners will quickly be dragged into the 40 percent charge.

“The move means that many who don’t think they will be hit by the death tax – and so won’t have organised their estate tax efficiently – will end up being faced with a hefty bill.

“The Government is the only one pleased with this move. The amount it generates from inheritance tax has been climbing consistently in recent years and will gather pace in the next few years while allowances are frozen.”

Paul Barham of Mazars, the accountancy firm, said the frozen inheritance tax threshold was “a tax in disguise” that “disregards the pace at which house prices across large swathes of the country are increasing”.

Recent predictions from the Office for Budget Responsibility also outline just how many people could be impacted in the future.

Its figures show that the number of people forced to pay is expected to almost double relative to pre-pandemic levels in the next five years.

Estates subject to death duties will number more than 41,000 a year by 2026, up from 22,000 in 2018-19.

This will contribute to Government inheritance tax revenues reaching £7.6billion by 2026, a rise of 40 percent in just five years.

A survey by Hargreaves Lansdown found last month that inheritance tax is the most hated levy despite just four percent of population’s estates being liable for it.

Sarah Coles, personal finance analyst at Hargreaves Lansdown told This is Money: “Nobody actively enjoys paying tax, but while we’re prepared to accept some as a fact of life, others inspire deep and abiding hatred among millions of us.

“Our hatred of inheritance tax belies the fact that in reality only 4 percent of people pay it, and that of the £334.3billion taken in tax between April and September this year, just £3.1billion of it was inheritance tax.”

Economist at the free market Institute of Economic Affairs, Julian Jessop, told Express.co.uk the wealth levy should be abolished.

He said in September: “I’m not a fan of inheritance tax because it isn’t obvious to me why someone should have to pay more tax because they have died.

“People should be free to build up assets and pay tax on the assets as they are going along, that’s fine. There might be a case for taxing the capital gains on your first home as well as your second home.

“The idea you should pay a tax bill because you have died, I don’t really see any justification for that.

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“My personal view is that it should be abolished, I just don’t see what it is about dying that means you should pay tax. It doesn’t make an awful lot of sense to me.”

However, other experts believe that wealth taxes would be the fairest way to pay for social care reforms.

Analyst at AJ Bell, Tom Selby, told Express.co.uk that wealth taxes would be the best way to do this, and added it is “likely” capital gains tax will be aligned with income tax.

He said: “The Office for Tax Simplification’s proposals edged towards aligning the two taxes.

“The impact of that would be someone disposing of an asset would pay significantly more tax than they do at the moment.

“There would be a big impact on landlords for example, people who have second properties.

“At the moment, capital gains tax is charged at 10 percent or 20 percent depending on whether you are a lower rate or higher rate taxpayer.

“If this was aligned with income tax, you would be looking at a tax rate of 20 percent, 40 percent or even 45 percent.

“So if you went down that route, anyone with significant assets or multiple properties could see a big impact on the value of their property.”

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