Inheritance tax is one of the most controversial taxes in the UK. Charged on the cost of the assets left behind, some beneficiaries can be taxed up to a staggering 40%. When you’re already dealing with bereavement, the last thing you need is to have a large portion of your inheritance taken away.
While inheritance tax certainly isn’t going anywhere, there are proposed changes being introduced over the next couple of years. Here, we’ll look at what the future of inheritance tax holds and the changes which could take place in the next couple of years.
What is inheritance tax?
Inheritance tax is charged on property, money and possessions left behind from someone’s death. There is a cut off point of £325,000. This means, if the total amount of the estate left is less than £325,000, you won’t need to pay anything. You also won’t need to pay if you leave things valued above the threshold to your spouse or civil partner. If you were to give your entire estate to your children, the threshold can also increase to £475,000.
The general tax rate charged above £325,000, is 40%. So, say your estate is worth £500,000. You’ll get the first £325,000 free from tax. Anything above that would be charged at 40% tax. There are exceptions to this, and business inheritance is also often more complex to understand. That’s why enlisting the help of an inheritance tax service can prove invaluable.
How is it changing?
Nobody enjoys paying inheritance tax. However, changes are being proposed which could see improvements within the sector.
At the moment, there is a seven-year rule applicable. This means, you can give part of your estate away seven years before you die. As it will be viewed as a gift, there will be no inheritance tax to pay. However, experts are suggesting lowering this threshold to five years. This is largely because proving the gifts were exempt prior to a loved one’s death can be tricky. Many bank statements only go back six years, so there can be issues getting the proof required.
Business inheritance tax
If you’re planning on passing down a business to your family, you’ll want to familiarise yourself with business inheritance tax relief. With Business Relief, you can get either 50% or even 100% off the assets of the company.
Relief can be claimed on unlisted shares, property and machinery. As it can be quite complex, it is recommended you seek advice from a legal professional.
Overall, inheritance tax is known to be an unpopular tax across the country. There are some questions over whether it will be eventually abolished completely. However, for now businesses and individuals should familiarise themselves with the tax and what it means for their assets.