Just THREE days left to beat Sunak’s inheritance tax and capital gains tax raid – act NOW

Inheritance tax explained by Interactive Investor expert

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Tax experts are urging people to take action before midnight on April 5, or risk handing even more of their money to HM Revenue & Customs. That deadline is now just three days away, so there is no time to waste.

In his Budget in March 2021, Sunak froze a raft of tax threshold for five years, until 2025/26.

As well as inheritance tax (IHT) and capital gains tax (CGT), he also froze income tax thresholds and the pensions lifetime allowance.

This stealth tax raid will steadily drag more people into HMRC’s net.

The inheritance tax threshold remains frozen at £325,000, as it has since 2009, says Adrian Lowery, personal finance expert at investing platform Bestinvest. “If it had risen with inflation it would be £100,000 higher by now.”

The main residence nil-rate band for families passing on their main home to children and grandchildren has also been frozen, at £175,000.

With house prices surging £33,000 in the last year alone, according to Nationwide, more ordinary families risk paying IHT on homes and savings when loved ones die.

Lowery said: “As inflation rockets and estate values rise, more families will continue to be dragged into the IHT net.”

The Treasury collected an extra £700m million IHT between April 2021 and February 2022, taking the total to £5.5 billion.

It’s vital to take every opportunity to reduce your IHT liability, and the next few days are key as the tax year end looms.

One of the best way of doing this is to make tax-free financial gifts to loved ones every financial year, where possible.

Lowery said done properly, the money leaves your estate immediately so there won’t be any inheritance tax to pay in future.

You can gift up to £3,000 each tax year free of IHT. If you didn’t use last year’s allowance, you can carry this over, and gift £6,000 before April 6.

Couples can potentially give £12,000 away under this rule.

You can also make unlimited number of gifts up to £250 per person, provided they haven’t benefited from the £3,000 rule.

On top of that, you can make wedding gifts to a child of up to £5,000, to a grandchild or great-grandchild of up to £2,500, or to anybody else of up to £1,000.

That money falls out of your estate for IHT purposes, instantly.

Any other gifts maybe exempt, but only if you live seven years or longer after making it, Lowery said. “It pays to act now.”

Families should also work hard to reduce any capital gains tax liability, as Sunak has frozen the annual CGT allowance at £12,300, again, until 2025/26.

That is the amount of profit a UK adult can make each year when selling assets such as shares, property, paintings, antiques and jewellery.

HMRC’s take from CGT is rocketing, up 20 percent to a record high of £12.9 billion in the past year alone.

Basic rate taxpayers pay CGT at 10 percent, while higher-rate taxpayers pay 20 percent. The charges rise to 18 percent and 28 percent respectively, when selling an investment property or second home.

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Mike Hodges, tax partner and head of the Private Wealth Practice Group at Saffery Champness, warned: “The fiscal drag effect of the five-year freeze will still see more taxpayers paying higher tax bills.”

He added: “Taxpayers should use this year’s £12,300 allowance by making any disposals before April 5, or by transferring assets to a spouse or civil partner, in order to use their annual exemption.”

Gifts between spouses or civil partners are free of CGT, said Sean McCann, chartered financial planner at insurer NFU Mutual. “By transferring ownership of part of the asset you’re disposing of to your spouse or civil partner, you can double the annual £12,300 exemptions to £24,600.”

If your spouse or civil partner is in a lower income tax bracket, consider giving them a larger share of the asset before selling so that you pay less CGT overall, McCann said.

It can make sense to stagger disposals over a number of tax years, to make repeated use of your annual allowances.

Another option is to offset losses against gains.

If you can’t beat this year’s April 5 deadline, consider taking professional advice to be prepared for next financial year.

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