Millions of couples at risk of ‘tax trap’ as Rishi Sunak claws back billions
Inheritance tax explained by Interactive Investor expert
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
In the last decade the number of UK households with over £1million in property and pensions has risen from 1.75 million to 4.58 million. This has led to fears that millions of Britons could be caught out by HM Revenue and Customs (HMRC) as Chancellor Rishi Sunak claws back billions following the pandemic.
The calculations include net property worth, which is the value of a home minus any mortgage, as well as the value of occupational and private pensions.
Sean McCann, chartered financial planner at NFU Mutual, said: “Higher house prices and an increase in pension wealth has created more millionaire couples in Britain than ever before.
“However, rising wealth in property and pensions will lead to more people being caught in tax traps as a number of important thresholds have been frozen until 2026.”
Mr McCann explained that the main £325,000 allowance each person can pass on free from inheritance tax has been frozen since 2009.
Freezing the allowance leads to more people being caught out because property prices continue to increase.
Britons could lose free bus pass after state pension changes [WARNING]
‘Risk becoming poor value!’ Pension savers could lose THOUSANDS [INSIGHT]
‘Scared to go to the doctor!’ Fears of NHS prescription charges go on [WARNING]
Mr McCann continued: “Although we’ve seen the introduction of the ‘Residence nil rate band’ that allows individuals to pass on an additional £175,000 of the value of their home to ‘direct descendants’ – both these thresholds have been frozen until 2026 – a decision expected to collect £985million more in inheritance tax through fiscal drag.”
However, there is a way that people can get around it and many Britons are turning to pensions rather than property.
Britons have a staggering £6.45trillion in pension wealth, which is £1trillion more than they hold in property wealth.
He added: “Crucially, inheritance tax isn’t normally charged on pensions and so more and more families are using pensions as ways to transfer wealth between generations.”
The pension lifetime allowance is the amount you can build up in pensions during your lifetime without facing a tax penalty which currently stands at £1,073,100.
At the same time, income tax thresholds which have been frozen until 2026 will mean many more people will be caught in the 40 percent tax band.
Mr McCann added: “We will also see a growing number of parents lose some or all of their Child Benefit by triggering the ‘High income Child benefit tax charge’ once their incomes exceed £50,000, a threshold which hasn’t changed since it was first introduced in 2013.”
However, there are some legal ways to pay less to HM Revenue and Customs (HMRC) that could save people hundreds of thousands of pounds, mainly by giving gifts during one’s lifetime.
What is happening where you live? Find out by adding your postcode or visit InYourArea
How to pay less inheritance tax:
- Give away £3,000 away each tax year inheritance tax-free. This allowance can be carried forward for one tax year.
- Gifts to charities and political parties are tax-free when it comes to inheritance tax.
- £250 per person can be gifted each tax year which is not counted towards the £3,000 annual gift exemption.
- Consider giving away money from income rather than assets if affordable.
- Wedding gifts are tax-free up to a limit of £5,000 for a gift from a parent, £2,500 from a grandparent and £1,000 from anyone else.
Source: Read Full Article