New Government statistics have revealed that the Treasury will scoop an extra £400million from inheritance tax this year.
The total figure that the Treasury is expected to receive is estimated to be around £3.89 billion which is an increase of ten percent on the last financial year, meaning that the average family who falls within the scope of the tax will be handing over £111,000.
The UK’s inheritance tax law has undergone a dramatic change over the last few months following Alistair Darling’s pre-budget report. From April 6 2008 the first £600,000 of an individual’s estate is the nil-rate band and will not be taxed.
However, rising house prices are causing more estates to push over the nil-rate band which means they will become liable for taxation – while the worth of the estate in excess of the nil-rate band is taxed at a 40% rate.
The amount was previously set at £300,000 so the new law now means that many families will avoid the tax. However, for those who fall within the bracket, there are several steps that can be taken to lessen the impact.
Planning for your future in your thirties is thought to be one of the best measures against the tax. For example, being married or in a civil partnership will mean that assets passed to each other in death will not be taxed and in addition, married couples also stand to receive each other’s allowances.
In addition, it is advisable to write a Will which will mean that the executors will be given flexibility in reducing tax payments in the event of a death by, for example, setting up trusts for children.
Currently, the UK has got one of the most complex tax systems in Europe. For example, France allows for a total exemption from tax on transfers to spouses/civil partners and parents are able to leave up to €150,000 to each surviving child tax-free while Italy’s system depends on the relationship between the recipient and the deceased and property left to unrelated persons is charged at a rate of eight percent. Sweden has gone a step further and has this year abolished wealth tax.
Britain has been criticised in the past by the World Economic Forum (WEF) for having such tax-related red tape, forcing it to slip from second to ninth place among 131 states in the WEF’s annual league table.
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© Fair Investment Company Ltd