The lack of headline tax changes for individuals in the Autumn Budget and the increasingly shorter winter days may entice many into a state of hibernation, safe in the knowledge that the economy is bouncing back. In his Budget speech, the Chancellor of the Exchequer struck an upbeat tone remarking that employment was up, wages were rising and concluded the “forecasts show that our response to coronavirus is working”. This only served to increase this feeling of dormancy.
Despite the Chancellor’s optimism, there are a number of hidden factors that may, in real terms, significantly increase the number of people ending up within the inheritance tax net. Inflation is rising and according to the Bank of England chief economist, Huw Pill, will likely hit 5% early next year. Spiralling house prices have further eroded the value of inheritance tax reliefs and allowances. Consequently, more middle England families of average wealth, who were up until now protected from inheritance tax by allowances, will find themselves with an inheritance tax liability after the death of a loved one.
In Tunbridge Wells, the average house price could increase by 20 per cent over the next five years according the Savills. Many other areas are likely to follow a similar trend. The spring budget froze tax thresholds for inheritance tax for the next five years, which in real terms will equate to a tax rise for many families. These factors explain the Office for Budget Responsibility’s view that the number of families paying inheritance tax will double by 2026.
One positive outcome of the autumn budget was a freeze, for the time being, in capital gains tax rates. Capital gains tax remains at one of its lowest levels for decades. The fact capital gains tax is usually payable on a gift, as well as a sale of assets such as property or a share portfolio, is one of the factors individuals must consider when trying to reduce the value of their estate for inheritance tax. Individuals may seize this opportunity to crystallise gains and pay tax at the lower rates, rather than risk paying higher rates of capital gains tax or inheritance tax at some point in the future.
A lack of major tax changes, coupled with the freeze on allowances and inflationary pressures make this a good time for individuals to review their tax and estate planning. Our team at Thomson Snell & Passmore LLP is adept at explaining the law and taxation and can help you identify options available and assist with the implementation of your personal estate plan. Get in touch with us at firstname.lastname@example.org.