Inheritance Tax warning as Rishi Sunak may eye wealth tax – 'not going to get easier!'

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Inheritance tax (IHT) is chargeable on the value of an estate above a particular threshold of an individual who has passed away. Currently set at 40 percent, the levy is not well-liked amongst Britons, and many will be looking for ways to avoid it. But this prospect may become less likely in future, given the fact Chancellor of the Exchequer Rishi Sunak recently froze the Inheritance Tax threshold until 2026.

The report suggested the idea of a wealth tax is popular, as long as it is a one-off which has high enough thresholds to only tax the truly rich.

However, even the suggestion of such a levy has been unsettling for certain individuals.

Mr Rushton continued: “There have also been some rumours about a wealth tax, and at one stage, there was a figure of an estate worth £1million suffering this tax over the next five years, including properties and pensions.

“Pensions have historically been a good way of mitigating Inheritance Tax as they don’t form part of the estate.

“But if we were to see the introduction of a wealth tax at any point in the future which might impact on pensions, that would be challenging. It would mean that is one less thing we can use in terms of an Inheritance Tax strategy.”

Changes to Inheritance Tax, whether they come in the form of a wealth tax or not, may impact the way Britons look at their estate.

Common mitigation options for the levy may, as a result, have to be reconsidered.

Mr Rushton added: “We wonder if the door is going to close on things like pension strategies, or a new wealth tax.

“There’s also a trust review which was completed at the end of 2020 that we are waiting for results on. The results of that might impact some of our ability to mitigate via trusts.”

Of course, all of these points may also coincide with the Chancellor’s Autumn statement which is expected later this year.

With potential changes afoot, then, Britons are generally being encouraged to consider how their estate might be affected.

Mr Rushton concluded: “There is a little bit of pressure for those who are thinking about Inheritance Tax planning.

“Individuals may wish to undertake their plans now while all of these things are still available to them.

“We often see clients facing a very particular obstacle: they understand they might not need all of their wealth as they are settled in their retirement, but psychologically it is comforting to have that surplus there.

“Many individuals find it hard to relinquish a level of control to gift the money away. 

“But even in the worst crises, if you plan ahead and do a cash flow forecast, then you won’t be left out of pocket.

“Clients can have those conversations with themselves or with their financial advisors to see what is affordable to gift away.

“Then that can help to give them the peace of mind to sort out their estate.”

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