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How well do you understand inheritance tax?

SuccessionA survey by HMRC published in May 2019 concluded that the public have a relatively poor knowledge of inheritance tax (IHT) rules and lack of confidence in what they do know.

After adjusting for confidence levels,the survey concluded that the proportion with a “high knowledge” of the IHT rules and how they apply – as opposed to simply lucky with their answers (!) was just one in four.

HMRC recently commissioned a survey of 947 people who had made gifts in the last two years. To assess knowledge of the IHT system among these donors, they were asked eight questions, which are shown below. 

Now it is your turn to try - which of the following statements is true and which is19942 MACO Tax Planning 31 false?

(1) A donation to a charity or a qualifying political party can count as a gift that is exempt from inheritance tax - true or false?

(2) Inheritance tax may be paid on gifts totalling more than £325,000 if the person who makes the gifts dies within seven years of making them - true or false?

(3) A person can give as many gifts of £250 as they want in a year and not be subject to inheritance tax, as long as each gift is to a different person - true or false?

(4) Inheritance tax may be charged at 40% on gifts to individuals given by the deceased in the three years before their death - true or false?

(5) A gift can be the difference between the value of property and the actual price that the buyer pays - true or false?

(6) Inheritance tax will always be payable on gifts over £3,000 given in the seven years before death - true or false?

(7) A gift up to £1,500 to a niece or nephew getting married is always tax free - true or false?

(8) A married couple or civil partners can leave up to £950,000 to their children without paying inheritance tax - true or false?

 

How did you get on?19942 MACO Tax Planning 36

58% answered five or more of the questions in HMRC's survey correctly, while just 37% gave themselves a confidence rating of over 6 out of 10 on answering the questions.

After adjusting for confidence levels,the survey concluded that the proportion with a “high knowledge” – as opposed to simply lucky with their answers – was just one in four.

The correct answers: True: 1, 2, 3, 4, 5, 8. False: 6, 7

 

Whatever your score... a word of warning

It is worth considering why HMRC should have undertaken such a survey at this time. It may be no coincidence that the Office of Tax Simplification is due to publish its second report on IHT simplification soon.

Rationalising the rules on lifetime gifts is an obvious target, but as ever with simplification, there would be some losers. We can help you consider where you might stand on the wining and losing scale.

 

Unsure of the potential IHT bill your family could face?19796 MACO FINANCIAL ACUITY NEWSLETTER WEB FILES 14

How much tax is to be paid from your estate is entirely dependent on you – and the choices and plans you make now. You should also be prepared and plan ahead for your future as we are all now living longer.

We will talk you through the simple steps you can take now to plan for what is to come.

We will help you to structure your estate and financial arrangements so that your assets can pass to your beneficiaries tax efficiently.

We will advise you on a range of options and issues to consider, including:

  • Your income and capital needs in retirement and putting in place asset protection strategies.
  • Creating your estate plan and beneficiary mapping.
  • Advise you on minimising any potential CGT and/or IHT liabilities.
  • Making use of trusts to reduce your tax liabilities
  • Maximising the usage of tax allowances, reliefs and breaks available to you in life and on death, including Agricultural and Business Property Relief and transferring money between spouses, civil partners and other family members.

Front Cover TPL

 

There's more ideas in our Tax Planning for Life 2019-20 guide and on our IHT & Estate planning pages on maco.co.uk.

This email address is being protected from spambots. You need JavaScript enabled to view it.

Get in touch with Derek Hanlan, Associate Tax Director by email: This email address is being protected from spambots. You need JavaScript enabled to view it. or by calling 0141-272-0000 to arrange your Estate planning & IHT consultation.

 

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