New controversy around UK Inheritance tax

July 26, 2016 10:58 AM

Earlier today, an article published in the Telegraph highlighted a number of new controversies surrounding the topic UK’s inheritance tax. The article reported that campaigners are calling for a compensation for nearly 30,000 families paying inheritance tax in the two years from April 2015 because the Government “has taken too long to implement changes”.

The reference is made to the new, more generous Inheritance Tax rules which the Government announced in last year’s Budget, but won’t come into effect until April 2017. Hence, 28,000 people whose relatives passed during this period are paying in accordance with the old, less generous rules, and their financial advisors are claiming that their clients are liable for a compensation.

Although this matter is likely to attract a lot of mixed opinions, the fact remains that the UK’s Inheritance Tax is perhaps the most hated tax in the country.

TPA’s Chief Executive Jonathan Isaby pointed out in the past that:

A major reason for this is that if you’re rich, clever and lucky enough you can get around it perfectly legally because of the masses of reliefs. Relief on agricultural and business property alone is worth more than the total amount raised in Inheritance Tax. These complications are responsible for around 10 per cent of our 21,000 page tax code, and despite all the anguish it causes, Inheritance Tax brings in less than 0.7 per cent of government revenues.

Then, there is the issue of simple bad luck. Under a “seven-year rule”, gifts are not liable for Inheritance Tax provided that the original owner lives for seven years after making the gift. Thus, someone aged 70 could start making gifts to their children, pass away 10 years later of natural causes and escape the clutches of the tax-man. However, if a 40 year old couple were to be killed in a freak car accident, their children would have to carry the burden of tax if the estate was above the threshold. This simply cannot be right.

The government attempted to reduce the burden with the new legislation outlined in last year’s Budget, but yet again did it in a very complicated manner by introducing an additional £175,000 transferable tax-free allowance that only applies to main residences. This change is to be gradually phased in between 2017-2020. Amazingly, it’s far more complicated than it sounds and perhaps the main beneficiaries are likely to be tax advisors.

Jonathan Isaby, Chief Executive of the TaxPayers' Alliance, commented:

Inheritance Tax is a pernicious tax which hits families at the worst possible time. It's one of the most hated taxes which raises very little revenue while adding a great deal of complexity to the tax code. Never mind raising the threshold, the government should abolish the tax immediately.

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