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TAX TIP TUESDAY: Could it be ‘Out’ for IHT?

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 

Inheritance Tax (IHT) is a tax paid on the estate (property, money, and possessions) of a person who’s passed away.

There are only a few circumstances in which you won’t pay IHT – if the value of the entire estate is less than £325,000 or everything above the £325,000 threshold is left to a spouse, partner, or charity.

Once the value of your estate goes over this maximum, anything above is charged at the standard tax rate of 40%

There are also ways to decrease your liability. Gifting your home to your children increases the threshold to £475,000 and if your estate happens to fall under the threshold, any unused portion can be passed onto your partner, bringing the worth of their total threshold up to as much as £950,000

No more IHT?

While IHT really only affects less than 5% of deaths in the country, it has quite the reputation as being the most hated tax in Britain. Recently, the Labour Party put forth proposals to abolish the tax and utilise more gifts tax instead. It seems as if it was a runaway idea from a plethora of ideas included in the paper that were meant to instigate ideas of tax reform.

At this point, the idea is little more than a suggestion and not official party policy. In fact, it could be quite a long time off as Labour won’t make any serious moves until the next election when they construct a formal manifesto.

What could change?

Included in the proposal is the shifting of liability from the deceased’s estate to the recipient of the gift, taking a cue from other countries that impose estate taxes. This would mean the total allowance for gifts would be £125,000 (adjusted for inflation) over a person’s lifetime and anything exceeding this new threshold would be taxed as income.

There were other proposed changes discussed such as reducing the seven-year gift giving term to five years and abolishing tapered relief altogether.

Critics argue that these ideas would not actually alleviate any tax burden and in fact, would increase the amount of tax owed in some cases. This seems a likely outcome as estimates for return on these changes come in at almost three times as much as IHT.

Which begs the question: who would really benefit from the abolishment of IHT – the government or the taxpayer?

Worried about inheritance tax?

For financial guidance on all tax related matters, speak to the experts at Dental & Medical Financial Services.

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