80% inheritance tax after WWII – could it happen again after coronavirus?

Inheritance tax was raised to 80% after WWII. Could it happen again after coronavirus?

That was the question The Telegraph posed recently – hot on the heels of think tank recommendations that the Treasury target the wealthiest to cover its unprecedented spending and lost revenues wrought by the pandemic.

The Financial Times also weighed in on the Treasury’s “largest peacetime programme of fiscal support” – and noted a growing sense among politicians, economists and commentators that it’s the affluent who will be asked to pay more to deal with this year’s estimated £337 billion deficit in the wake of Covid-19. 

To put that figure into perspective – that’s more than double the deficit left by the 2008 financial crisis.

Could what you’ve carefully put by, so that your loved ones will be provided for, be at risk from high IHT?

IHT already stands at an eyewatering 40% on estates of a certain value (kicking in once you’re worth more than £325,000). Now it's been suggested the Treasury could decide to cast the net wider for this most hated of all taxes to draw in more funds. Could the lion’s share disappear to the taxman after you’re gone?

Free guide – get the main facts on IHT

If you’re concerned about IHT and considering options for your estate, this free guide may be helpful. It contains a simple and impartial overview of key points concerning IHT, such as:

  • How do IHT rules currently work?
  • What are the usual and some lesser-known ways that could allow you to mitigate IHT?
  • Not many realise ISAs can be subject to 40% IHT. How might you protect your ISA from IHT?

How to beat the inheritance tax trap guide

Quick reminder on how inheritance tax works

Generally, 40% IHT could kick in once your estate is worth over £325,000 (your estate includes your home, savings, investments and also your ISA). 

There are various allowances, e.g. the Residence Nil-Rate Band, to the extent a married couple could potentially leave £1 million IHT free. 

On the other hand, where allowances other than the standard nil rate band don’t apply, a £1 million estate could attract an IHT bill of up to £270,000. 

Our free guide explains in more detail how current rules work, including an explanation of Residence Nil-Rate Band.

Ways to mitigate IHT

You might feel, as many do, IHT penalises you after you’ve spent long years saving for your family’s future. If so, what could you do about it?

There are, in fact, various ways to mitigate IHT.

For instance, a traditional cornerstone of IHT planning is to give large sums of money away to your loved ones as gifts, or put it trust for them. Under current rules, after seven years such money should be free of IHT.

This might not suit everyone, though. Some find that seven years is rather a long time – and bear in mind once you give the money away it is no longer yours, say, to fund elderly care or to meet future, unforeseen needs.

So are there other tax-efficient options available?

There are lesser-known but increasingly popular tax-efficient options available to experienced investors. These require less time than gifts and trusts to become IHT free – plus they allow you to retain access to your money.

These options involve investing in private or AIM-quoted companies that qualify for something called “Business Property Relief” (BPR). When you do, your investment could be IHT free after two years. Plus, you can get the money out if you need to (but IHT tax breaks would then cease to apply).

The flipside of the shorter timeframes, greater control and potential tax breaks is these investments are high risk and illiquid – so they’re only for experienced investors who understand the risks and could withstand a loss. Also note, tax rules can change and benefits depend on circumstances.

You can find out about this – and more – in our free downloadable guide: ‘How to beat the Inheritance Tax trap’.

To gain a better understanding of various tax-efficient options for your legacy, why not download and read the guide now?

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.

Free guide: How to beat the inheritance tax trap

Get the main facts in plain English: how inheritance tax works and ways to potentially mitigate it

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