Another Inheritance Tax Rise

By Author: Peter McGahan
Total Articles: 5
Comment this article

Managing Director, Worldwide Financial Planning, Writes:

Inheritance tax is clearly one of the most unpopular taxes in the system and it's about to become even more unpopular.

Inheritance tax is paid on estates where a transfer is made on death of over £325,000. There are a number of exemptions but I won't cover them in this column.

The biggest inheritance tax ‘exemption' is the inter spouse exemption which ‘allows' you to give everything you have to your spouse - how delightfully kind. That's the same money your employer paid 12.8% national insurance tax on, you paid 11% national insurance on, and then you had the joy of either 10%, 22% or 40% tax on if you earned over £34,600.

This is before the council tax, parking tax (how did they ever survive without charging me to go and see an ill person at the hospital) and the countless ‘green' taxes, vat, and taxes on insurances coupled with road tax.

After surviving that, the lucky person who manages to save money will be clobbered with a savings tax. If they are lucky enough to make a gain they will be clobbered for capital ...
... gains tax and then they die.

The estate is then battered with an inheritance tax of 40% of its value in excess of £325,000. Where does the money go?

As if to make that worse, the government are now proposing to hike the rate of interest (sorry, that's just another tax) at which you pay if you are unable to pay the inheritance tax after six months.

If you have a property in your estate, you can elect to pay the tax over ten years. Currently the interest charge is 0% but the revenue have increased that to 2.5% over the bank of England base rate. Whilst the base rate is at 0.5% that is no big deal, but if base rate hovers around an average of 5.5% that's a whopping 8% per year charge on late payments.

Furthermore if quantitative easing bites and inflation occurs, base rates of far in excess of this are a distinct possibility. Quite how they believe the figure they should be charging is linked to a base rate I don't understand.

It should therefore follow that the interest rate you receive on any refunds would be linked to 2.5% over the base rate. Ah! Now that would have been appropriate.

Interest on refunds is paid to you at a shambolic one point BELOW the base rate. Easy money!

Apparently a spokesman said this makes things ‘fairer for customers'. Furthermore this decision was made after ‘extensive consultation over the last 18 months'. Who on earth did they speak to create that solution?

The revenue expects to collect £2.2bn in Inheritance tax this year. Each year they receive £9.7 million in interest payments and make £2.2million in repayments. That's a good day at the races. Apparently this move is likely to only make around £10m for the government but I suspect the motivation is cash flow. By increasing the rate at which they charge you, tax payers will look at whatever ways they can to come up with the capital now which will blast a hole through the governments soaring debt.

In a rising housing market where properties are selling, this is no real problem as there is always a willing buyer. An oversupply of properties coupled with low demand today means the beneficiaries will be forced to sell a property to repay the tax and the values could be under considerable pressure.

This is unfair in that the beneficiaries are not in a position to decide when someone dies and they are simply forced to pick up the pieces.

There could be further pain for many who believed the story of there now being double the nil rate band on death. This has caused considerable apathy and many holders will fall straight for that trap causing lasting financial hardship.

If you have an Inheritance tax query call Peter on 0845 230 9876, e-mail info@wwfp.net

About the Author:

Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
The value of shares and investments can go down as well as up.
'Your home may be repossessed if you do not keep up repayments on your mortgage'.

'Worldwide Financial Planning Ltd are authorised and regulated by the Financial Services Authority. Worldwide is entered on the FSA register www.fsa.gov.uk/register/ under reference 440668

Registered office; The Old Carriage Works, Moresk Road, Truro, Cornwall, TR1 1DG. Registered in England and Wales No. 3533548. Contact info@wwfp.net or 01872 222 422

© 2009 Worldwide Financial Planning - this site is intended for UK investors only

By clicking on any of the external links within this website you will leave the regulatory site of Worldwide Financial Planning Ltd. Worldwide Financial Planning Ltd are not responsible for the accuracy of the information contained within the linked sites.'