George Hay Chartered Accountants were one of the first accountancy firms in the country to obtain a licence to carry out non-contentious probate work. In our monthly column, we give you an insight into the process and provide an update on what is happening in the world of probate and estates.
Inheritance Tax (IHT) is once again in the news, with the Daily Telegraph mounting a campaign to have it abolished, allegedly supported by many politicians.
The latest HM Revenue & Customs (HMRC) information shows that IHT receipts exceeded £7bn for the first time last year, not surprising when you consider the nil rate band of £325,000 has been frozen since 2009.
At George Hay, we are apolitical; however, what is concerning is a look at the newspapers’ website where readers have given examples of why IHT is a problem for them.
One person wrote:-
“I want to move nearer my children. However, my house qualifies for the Residential Nil Rate Band of £175,000 and if I sell and move to a smaller property, I will not qualify for the allowance and my IHT will go up”.
On fact checking, this is probably wrong. Firstly, there is no time limit as to how long you need to own a property for in order to qualify for the RNRB of £175,000. Therefore, if the new house cost £175,000, then there is no problem; relief will still be given.
Secondly, even if the person just rented a house nearer to their children, they could qualify for downsizing relief which would preserve eligibility for the £175,000 relief as long as the children inherited that amount.
Strangely, the Daily Telegraph actively campaigned for downsizing relief in 2017 when the new rules were introduced so should have been aware of this.
“I own my house with my sister, I will be forced to sell the house when she dies as there is no IHT relief between siblings”.
In truth, the above is correct but is it that detrimental? These cases are often written to imagine two elderly ladies living in a cottage somewhere in rural England.
Let us assume the house jointly owned is worth £1m and will be inherited by the surviving sibling. Let us also assume the deceased held no cash. Then, IHT would be based on the deceased’s one-half share of £500,000, less the nil rate band of £325,000 i.e., £175,000 at 40%. This would create an IHT a bill of £70,000. I accept this may not be affordable.
It is possible the surviving sibling could elect to pay £7,000 a year for 10 years, albeit with interest being charged.
They could also get a £70,000 mortgage or an equity release which, for only 7% of the value of the property, should be easy to obtain. Alternatively, if the survivor did move, they would have £930,000 to spend on their new house, so not entirely life shattering.
That is not to say there are not problems with IHT. Probably more fundamentally with the RNRB in that people without children cannot get it. Is that fair?
In the case of the siblings, perhaps some different election could be introduced where the tax is not paid until the survivor dies.
What the above does highlight is that there are many myths within IHT. The £3,000 IHT annual exemption is probably the most known about of any tax relief and yet the majority think that is the most you can give away each year free of tax, which it isn’t.
The newspaper’s campaign says that the wealthy can afford to take expensive advice to plan to save IHT.
We would regard our fees as proportionate and much of our time is explaining sensible pragmatic solutions to save tax that might not even exist in the first place.
To talk to one of our professionals in confidence about our probate and estate services, call 01480 426500, or to find out more about how we can support you estate and Inheritance Tax planning, visit www.ghprobate.co.uk.
Authored by Director of GH Probate Ltd., Barry Jefferd.
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