Inheritance tax (IHT) is a controversial tax. Many find it to be excessive in the modern age. It is often referred to as a “death tax” as it is usually levied on estates that are being passed on when a person has died. There are methods of reducing this tax but many of them can be deemed as morally dubious.
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Some options such as giving gifts to family and charities will lower an IHT burden.
However, other methods can be utilised for lowering a bill which may be out of reach for many people.
If a person holds certain business assets their IHT bill can be lowered, which may lead to shell companies being formed and expensive lands bought.
This may not be an option for people on lower incomes and with limited resources, leading many to call the current system unfairly favoured towards the wealthy.
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Changes to IHT will likely be made in the upcoming budget (Image: GETTY)
Rising property prices has put IHT in the spotlight (Image: GETTY)
The problem has been exacerbated by rising property prices, which has resulted in many people needing to pay this tax who were not originally the targets.
As the current rate is 40 percent, it can be a huge burden to those with limited assets.
Up until fairly recently, it looked like IHT would face changes under Sajid Javid, the previous Chancellor of the Exchequer.
In late 2019, he made it clear that he was aware of some of the problems associated with IHT and that changes could be forthcoming.
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At a relatively recent conservative conference, Sajid was questioned on his plans for completely getting rid of the tax.
He responded: “Well first of all we’ve already made some sensible reforms in that tax.
“But I hear what you’re saying you’re not the only one. I shouldn’t say too much now but I understand the arguments against that tax.
“I do think that when people have paid taxed already through work or through investments and capital gains and other taxes, there is a real issue with then asking them to pay taxes all over again.
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“Look, sensible changes have already been made but it’s something that is on my mind.”
Of course, the situation will now be different as Sajid Javid has been replaced by Rishi Sunak.
The former businessman has said relatively little about inheritance tax thus far, but there have been rumours and reports on his position on this matter in recent weeks.
While nothing has been confirmed, the new Chancellor is reportedly thinking about closing the aforementioned business loopholes that can save people up to 100 percent on their IHT bills.
Wealthy families may be able to reduce IHT bills in ways that other families can’t (Image: GETTY)
While many believe that changes to IHT will come from the March budget, there has been little insight from the official government line on the topic. Taxes were focused on in the official conservative manifesto from 2019 but there was no mention of IHT specifically.
However, Boris Johnson has previously focused on property from a tax perspective. Some of his actions paint a mixed picture. He planned to introduce a “mansion tax” on high-value properties in the upcoming budget but this was scrapped following fierce backlash.
IHT has also been on his radar in previous years. When he was the mayor of London, he called for people aged over 65 to be excused from paying IHT when they sell their homes, in the hope that this would encourage downsizing that would eventually lead to more family homes being available in London.
With this combination of rumours and official plans, it will be hard to predict what will happen as the budget is laid out but many will likely be paying attention.