The standard Inheritance Tax rate is 40 percent, and this usually only applies when it is above a certain threshold. If the value of an estate is below the threshold of £325,000, there’s normally no Inheritance Tax to pay.
Expert lawyers have suggested that these reliefs may be cut in order to help to pay for the Coronavirus Job Retention Scheme – also known as the furloughing scheme.
The scheme – announced by Chancellor of the Exchequer Rishi Sunak back in March – has recently been extended to October, although some changes are to take place from August.
Currently, eligible furloughed employees are able to receive 80 percent of their wages up to £2,500 per month.
The scheme is said to be costing the Government around £14billion each month.
Business Property Relief (BPR) and Agricultural Property Relief (APR) are both ways of passing on assets without needing to pay Inheritance Tax (IHT).
The reliefs can currently achieve up to a 100 percent tax saving, meaning assets that fall into these categories – such as family businesses, AIM shares, agricultural land and farm buildings – can be passed on to children tax-free.
Specialist lawyers at law firm Irwin Mitchell say that while focusing on increasing taxes on income would be unpopular, cutting the reliefs on how rural and business assets are inherited are easy targets – and could be reduced.
Kelly Greig, partner and head of Later Life Planning at Irwin Mitchell said: “At the moment we have the vital furloughing scheme supporting thousands of workers, with the bill being footed by the Government – but this is creating a gap that needs to be plugged, most likely through raising taxes.
“We’ve already had some savvy clients getting in touch looking to do any tax planning that they can because they’re anticipating the aftermath of the furlough scheme will change things when it comes to personal tax.
“The Government has previously looked at APR and BPR reform as it’s a very generous relief.
“They’ve already reduced the lifetime allowance for pensions and the tax-free bracket keeps increasing, plus income tax is already high, so I wouldn’t be surprised to see this 100 percemt relief reduced substantially perhaps to 50 percent for those assets currently qualifying for 100 percent or alternatively reducing the net that qualifies for relief.
“If they decide to keep those in place, we could instead see the Government take up the Office for Tax Simplification’s recommendation from last year that ending Capital Gains Tax (CGT) uplift on death should go ahead.”
Tax, trusts and estates experts at law firm Irwin Mitchell say there are some effective ways to protect these assets to bank the 100 percent reliefs now.
Experts went on to suggest that delaying could cost thousands later down the line.
Ms Greig explained that as such, it may be that some opt against delaying taking action “when it comes to making the most of the reliefs while they’re still available”.
She added: “It’s a good idea to review your circumstances and look to bank some of those reliefs now, as this could potentially save thousands of pounds in tax in the long run.
“For instance, if the CGT uplift does indeed get scrapped, there’s all the more reason to gift to a trust or to members of a family working hard in the enterprise.
“It may be the case that market values may be lower in an uncertain market, so it’s a good time to gift these assets because of less CGT that would be paid.
“Trusts are another option as well, but there are plenty of different ways to lock in the bonuses now.
“In these uncertain times it’s best to prepare in any way possible, and getting ahead of the curve now will pay off in the long run should APR and BPR reliefs be reduced.”
Published at Wed, 27 May 2020 14:17:00 +0000