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Paul Johnson’s article in The Times today (3rd February) on inheritance tax following the publication of the All Party Parliamentary Group (APPG) report last week makes inheritance tax a hot topic. The report suggests cutting the tax from the current level of 40% to a more appetising 10%, with the proviso that all current loopholes will be removed.

The APPG suggests that by reducing the percentage of inheritance tax payable, tax receipts could go up, because there would be less incentive for the wealthy to evade the tax.  The super wealthy may take a different view, since 10% would still be a sizeable chunk of their estate.  This is especially true if you are a member of the landed gentry, when any death duty can mean the break-up of your estates. The debate goes to the heart of our society. For example, I was reminded on a recent trip to Battle, (which I had never undertaken before despite being a keen historian), that a fifth of all the land in England has not changed hands since the Battle of Hastings in 1066.

The reality is that many people cannot easily evade inheritance tax, since it is charged on their house, an asset difficult to take outside the inheritance tax net. Under the current law this affects people not in marriages or civil partnerships, whose house is worth in excess of £1million. Any further assets will be taxed at 40% whether, or not, a person is in such a partnership. If you dispense with the reliefs for any gifts made during your lifetime, as well as the agricultural and business property reliefs, as the APPG proposes, this will benefit these people, but it could be very damaging to many wealthier people’s succession planning.

This goes to the heart of the type of society that Britain aspires to be, since we are in a capitalist system, which encourages businesses and their owners to generate wealth, on the proviso that they employ the majority of Britons on PAYE. Under the current system, the business and landowners are incentivised to accumulate and pass on their wealth, whilst most people’s main source of wealth is taxed on death. The APPG’s proposals could result in addressing this imbalance, whilst increasing the tax receipts.

If you would like to know how this affects you, contact our succession planning expert Christopher Hall – 0333 772 7736

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