Paying Death Tax Whilst You're Still Alive?
In an effort to crack down on tax avoidance, the government have made proposals regarding 'accelerated payment'
, where HMRC suspect that tax avoidance schemes are being used.
While perfectly understandable that a hard line is being taken on 'shady' tax schemes
, a move towards 'back dating' tax laws and an assumption that someone is guilty until proven innocent is most likely the wrong way to go about it, as this contradicts the rule of law.
More Tax is Being Paid, Why?
Rapidly increasing property prices have meant that more people are leaving behind an inheritance tax bill
, because it is payable on any estate over £325,000
minus any relevant tax reliefs. According to HMRC figures, the amount received in IHT payments is close to levels seen before the financial crisis. In fact, since the economic recovery began, receipts have been increasing, showing that more people are paying more IHT.
The proposed reforms would mean that some people will be liable to pay an 'IHT trust charge'. These trust charges become due when someone moves a large amount of their estate into a trust
. The trustee then becomes responsible for managing the assets on behalf of the person who gave them to the trust, known as a 'settlor'.
If the total the settlor transfers breaches the £325,000 IHT threshold
, an IHT trust charge will be due. If this is then paid by the trust it is paid at 20 per cent
, rather than 40 per cent that would normally be due under IHT rules.
This trust charge may have been paid when the transfer to the trust was made, while some charges fall on the tenth anniversary of the trust being set up
. Clearly, this can come while the settlor is still alive so, in this sense, an IHT charge is due from someone living.
The Potential Impact of the Powers
HMRC have pointed out that they do not want laws to have an impact on trusts and schemes
that are, "used legitimately in many arrangements by the vast majority of people". Whilst this may sound comforting, the powers would still leave HMRC with discretion to essentially decide whether you are taxed in this way.
Jonathan Isby, CEO for The TaxPayers' Alliance, makes this very clear, pointing out that the Government's proposal to demand "accelerated payment" of inheritance tax
is the latest way of making HMRC judge, jury and executioner on all tax matters, coming in the wake of plans to allow a "direct dip" into bank accounts to recover supposed debts.
It seems the timeless phrase 'watch this space' is pertinent here. Though for now, this news oes go to show that proper estate planning is vital
, in order to make sure that both you and your loved ones aren't exposed to unnecessary task risk.