As the impact of the coronavirus continue to impact the country, it is becoming more and more obvious that the UK tax position is likely to change dramatically as the government looks to recoup some of the money it has been investing to protect the UK economy.
Experts are predicting these changes may not be made in next week’s budgets – at least not in totality – as it’s felt it would be too hard for people to take with so much uncertainty still around. However, they do feel the increases will almost certainly be part of the Chancellor’s next budget.
In terms of which taxes will be affected, Capital Gains Tax and Corporation Tax have both been rumoured to rise. It is highly like their will be an effect on Inheritance Tax (IHT) too.
If there is to be an effect on Inheritance Tax, we’d suggest it would be prudent to reassess your personal tax situation as quickly as possible. Taking positive action now may significantly reduce the size of the IHT bill your beneficiaries will face in the event of your death.
In terms of the action you could take to limit your inheritance tax liability before IHT rates are increased, they include:
1. Making a Will
This has to be the first step.
Making a Will will make sure your assets are divided as you want them to be following your death. It is particularly important if you are either not married or are remarried and have either children from a previous marriage or step-children from your current marriage to consider. It is also extremely important if your Estate includes multiple properties and/or shares, pensions, and savings.
During the Will writing process an experienced lawyer will be able to help you get all your tax affairs in order.
This includes identifying potential opportunities to make the best possible use of your inheritance tax allowances and exemptions. It also allows us to suggest where alternative legal structures like trusts could be used to maximise your beneficiaries’ inheritance.
If you already have a Will, it is definitely be worth asking your lawyer to review it with you. Your circumstances or wishes may have changed since it was written so changes would need to be made to ensure you are as IHT efficient as you can be.
2. Inheritance Tax Trusts
There may be an opportunity for you to make gifts to or write pension or life assurance policy income into a trust.
However, you need to look at all the angles with your lawyer. Trusts can be taxed heavily which means that if the circumstances aren’t right, you could end up paying more tax than expected.
3. Lifetime Gifts
Gifting your family money during your lifetime is often the best way to reduce your inheritance tax liability as it reduces your Estate in increments.
You can make as many gifts as you like during your lifetime so, with the assistance of your lawyer, lifetime gifts are definitely an aspect to consider if you would like to revisit your personal tax planning.
The picture will of course become clearer once the Chancellor announces his budget on 3rd March and we will look at the details that affect tax, property, and families straight after.
If you would like to review your inheritance tax planning provisions now and discuss what you could do to mitigate any future changes to the IHT rate, please email deniece.lines@collinshoy.com or call Deniece on 0208 866 1820.