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Wealth managers react as IHT burden rises
The Government collected £3.1bn in inheritance tax (IHT) between April and September, a rise of 22% (£0.7bn) year on year.
The figures - published by HMRC this morning - come amid speculation of potential reforms to IHT.
The Chancellor is due to deliver his Spending Review and Autumn Budget next week (27 October) and is likely to be looking for ways to raise funds to pay for the cost of Coronavirus support schemes.
Heather Owen, Financial Planning expert at wealth manager Quilter, said that while some may be hoping for IHT changes it does not seem the most likely area for reform.
She said: “With the budget fast approaching, the rumour mill has begun and questions surrounding inheritance changes are beginning to form, with some suggesting, or perhaps hoping, it could be scrapped altogether.
“Families hit earlier in the year by the nil rate band and residence nil rate band freeze at existing levels until April 2026, at £325,000 and £175,000 respectively, will likely be hoping for reform. Despite the fact that this morning’s public sector borrowing figures give the Chancellor a little more wiggle room, reform remains unlikely.
“While inheritance tax raises relatively little in comparison to the Chancellor’s growing list of spending projects, a change of this magnitude is highly unlikely as the Treasury needs every penny it can get right now.”
However, Tilney Smith & Williamson believes that Boris Johnson’s recent addition of the health and social care levy demonstrates that a reform to IHT is a real possibility.
Julia Rosenblood, tax partner at the firm, said: “Ahead of next week’s Budget, Chancellor Rishi Sunak will therefore be looking closely at all possible areas he can tap for additional revenue, not least from personal taxes such as IHT which have shown yet another uplift, to boost the Treasury’s spending power.
“Prime minister Boris Johnson’s recent announcement introducing a new health and social care levy, which broke a manifesto commitment, demonstrates that the Government is not afraid of tax rises. Whether any reforms to taxes are announced next week or at a later date, the outlook as to how individuals and businesses will be taxed in the coming years is far from certain.
“There have been a number of reports published by the likes of the Office of Tax Simplification as well as an All-Party Parliamentary Group on how IHT could be reformed, which present the Chancellor with plenty of possible options for change. Areas of focus in the studies have included the rules on lifetime gifts, the exemptions, and the CGT-free uplift on death.”
Regular ‘family updates’ from clients at each review meeting can kickstart the conversation on inter-generational wealth transfer and IHT planning, according to Scott Palmer, Chartered Financial Planner at Walker Crips.
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