When is the Right Time to Die?
Why am I asking this question? Well, Katie Morley – Consumer Affairs Editor of The Telegraph – is suggesting that close to 30,000 families will be paying inheritance tax in the two years from April 2015. I argue that they should be compensated as the government has taken too long to implement the changes agreed.
Who does this affect?
It affects the families of those who have died since the changes were announced in last year’s budget and the families of those who die before the changes are due in April 2017.
Why is this happening?
The soaring house prices (particularly in London) and a spike in winter deaths mean the government will get a record £4.7 billion in inheritance tax – 20% higher than last year. It is estimated that around 28,000 families will have to pay up to £80,000 between these dates. It is also estimated that around 14,000 people would have qualified for the new residential allowance. The number of estates liable for inheritance tax has quadrupled since 2010 from 10,000 to over 40,000 this year.
So, what is the situation now?
Currently estates worth up to £325,000 can be passed on without paying inheritance tax. Above this figure the rate is 40%. Obviously £325,000 for property in London is rubbish – you would be lucky to get a garage for that! House prices across the UK have risen 5% in 2015, but this figure soars to 12% across London and the South East. Therefore, half of all people paying inheritance tax are in London and the South East.
The new proposals
In April 2017 the government will introduce the additional tax free allowance. It will allow homeowners to give an extra £100,000 to their families, or £200,000 for a couple. This will rise to £125,000 in 2018/19 and to £150,000 in 2019/2020. Therefore in 2020, the new allowance will enable homeowners to pass £500,000 onto their relatives, or £1 million for a couple.
Of course we welcome any change in the tax system which benefits the poor old tax payer, but – as with any system – there will be those who lose out. The losers will be those who have property just over the £325,000 limit and very little income apart from their pension. Obviously their property has gone up in value from when it was first purchased, but with all the other costs associated with death, some families will still struggle to pay the tax.
Are we getting ahead of ourselves?
Well, since the Brexit decision the Chancellor is obviously trying to scramble money from anywhere he can. Is he really going to let such a lucrative pot disappear? Especially as he doesn’t have to do anything but sit and wait for an epidemic perhaps?
Are we hopeful that the government will compensate people as suggested by Katie Morley? Not on this planet.
So, if we want to really benefit our relatives, we will need to be careful when we choose to die. Really we should wait until 2020 in the hope that the government does not change its mind – though of course it is election year…