Numerous media sources have recently reported that HM Revenue & Customs has allegedly been looking at plans to send out accelerated payment notices to individuals trying to reduce their inheritance tax (IHT) liability through the use of avoidance schemes.
This would result in the payment of IHT before death whilst a full investigation took place. Recipients of such notices would have to pay any IHT due within 90 days and repayment would only be made if everything was held by HMRC to be ‘above board’.
HMRC denies the claims
HMRC has stated that it would only ever issue such notices to people using avoidance schemes that have been disclosed and registered under the Disclosure of Tax Avoidance Scheme and that it only affects “a small minority of wealthy individuals actively seeking to avoid inheritance tax”. Even then, payment would only need to be made after death if the avoidance related to payment on an estate at death.
Moreover, HMRC states “the Government is not making any changes to the collection mechanism for inheritance tax, which is payable after death. In no circumstances is the Government seeking payment of these charges during the taxpayer’s lifetime”.
It now appears that what the media first reported was somewhat of a storm in a teacup. However, had the plans been put into place, legitimate tax planning schemes may have come under scrutiny.
The idea of ‘pay now, argue later’ may also have proved a somewhat bitter pill to swallow to anyone affected by the proposals.
Inheritance Tax- a recap on the current position
On death, IHT is payable on the value of your estate, which does not pass to fully exempt beneficiaries.
The first part of the estate, known as the nil-rate band and currently set at £325,000, is taxed at nil per cent, so is effectively tax-free, and anything above this is taxed at 40%.
A widower of a spouse, however, who left less than the nil-rate band to non-exempt beneficiaries will get an uplift in their own nil-rate band – giving up to a maximum of £650,000.
It is also worth remembering that whilst IHT is commonly understood to be paid on death, IHT may also be payable in relation to lifetime trusts.
Always ask for inheritance tax and trust advice
Inheritance tax and trusts are not straightforward subjects and can be particularly complex in order to achieve the right result and take advantage of any exemptions to reduce liability.
If you are at all unsure about your inheritance tax position or wish to discuss any aspect of a trust or Will, please feel free to contact the Wills, Trusts and Probate Team at Bray & Bray. We have three main offices across Leicestershire with someone always on hand yo offer you expert legal advice. Feel free to pop in and see us at your local office.