In 2017, changes to UK Inheritance Tax started to be rolled out. The overall goal was to allow civil partners and married couples to pass on up to £1 million totally free of Inheritance Tax by 2020. However, the Commission for Economic Justice is now proposing further changes which would actually limit how much inheritance is tax-free, and how many personal gifts a person can leave to their loved ones tax-free.
How would these proposed changes to UK Inheritance Tax affect your children? Below, we’ll look at what the changes are and the impact they could have on UK families.
What changes are being proposed?
The Commission for Economic Justice is proposing numerous changes to the UK’s economy in order to ensure a more just society. In terms of Inheritance Tax, they propose it is scrapped entirely and replaced by a lifetime tax on any gifts left over in a will.
The Archbishop of Canterbury is a member of the Commission for Economic Justice and he spoke about the proposed changes in early September. The lifetime tax on gifts would be worked out by the recipient, rather than their estate. There would be a lifetime allowance of approximately £125,000 for each recipient.
The proposals come after the Commission of Economic Justice discovered wealth was distributed a lot less equally than income. To combat the issue, it is being suggested that any income, regardless of whether it is from work or from wealth, should be taxed equally. This would mean that Capital Gains Tax and the separate tax rates on dividends would also be eliminated. Instead, they would be included in the Income Tax schedule.
How could the changes affect your children?
So, how would these new changes affect your children if you were to leave them your property? Well, put simply, the tax burden would be removed from you and placed upon your children instead.
Your children would get £125,000 tax-free inheritance, and then there would be a 20% tax rate up to £500,000 and a 30% tax rate for over £500,000. What this basically does is remove the advantage which currently exists of passing on an estate both prior to and after death. More people would need to pay, but it would mean they would be paying less than what they currently do.
The importance of planning ahead
Although at the moment, it’s unsure whether the new proposed changes will come into effect, it’s worth planning ahead to ensure your family is protected after you’re gone. Inheritance Tax can be a complex area to navigate and understand. So, it can prove useful to seek advice from a financial planning company such as Tilney. They will be able to help you plan for your children’s future and ensure both of you understand what will happen to your property when you’re gone.