5 Biggest Inheritance Tax Myths
Our Inheritance Tax Planning seminar in November will be providing practical tips and ideas on how you can reduce your inheritance tax bill.
Ahead of this we thought it a good idea to dispel some popular myths about Inheritance Tax.
Jonathan Eley, personal finance Editor of the FT believes there is a ‘huge amount of nonsense’ banded around about Inheritance Tax. His 5 biggest myths are:
1. It’s become a tax on the middle class.
In 2011/12, the latest year for which detailed figures are available, 248,981 estates did not pay IHT and 15,976 estates did. That’s 6 per cent of the total, and far fewer than the 34,060 estates that paid it in 2006/07, before the nil-rate band became transferable between spouses.
Figures from the Office for Budget Responsibility show that IHT accounted for just 0.6 per cent of tax revenue in 2012/13, and predict that it will account for 0.8 per cent by 2018/19. If you want to get angry about fiscal drag on the squeezed middle, get angry about the five million people now paying higher-rate income tax (on money they actually work for).
2. It’s ineffective because the rich can avoid it.
It’s not just the rich that can avoid it. In fact anyone can avoid it. It doesn’t have to be just the mega-rich who create trusts or set up offshore bonds. Potentially, you could just give your cash away whilst you are still alive and enjoy seeing it put to good use and benefit those you love. Alternatively, flexible planning strategies exist which mean you can retain access and control of your funds whilst still removing any Inheritance Tax liability.
3. It’s double taxation.
Generally, this is not so. For example, capital gains on a main residence is not taxed anywhere else in the system. However you
don’t need to look very far to see other examples of double taxation. Take VAT for instance. This is paid disproportionately by the less well-off. Then of course there’s the tax we pay on interest gained on savings. Both of these affect far more people.
4. It penalises work and saving.
Yes it does, but not in the way you might imagine. Someone earning £50,000 a year for 10 years would pay £96,270 in income tax, assuming current tax rates remained constant. Someone inheriting a £500,000 estate would pay £70,000 in inheritance tax. Under certain circumstances, and with the correct planning, they would pay nothing at all.
5. ‘You should be able to pass a family home on to your children’, says David Cameron.
That’s all well and good for the small percentage of the population that has seen their properties grow in value, but means zip to the majority where the value of their house has stagnated. ‘Another instance of postcode lottery’, remarks Jonathan Eley.
Inheritance Tax Planning can be confusing
We’re here to bust the myths and explain the situation as it is. Everyone’s circumstances and dreams for the future are different and need to be viewed individually. That is exactly how Swindells Financial Planning works with their clients, with their best interests at heart.