Inheritance Tax is usually charged on estates when a person has died and it passing on assets. It is usually levied at 40 percent on the parts of the estate valued higher than a £325,000 threshold.
The latter may prove to be especially important to note as newly released data from HMRC showed the Government is collecting more from CGT.
Richard Jameson, a partner in the Private Wealth team at Saffery Champness, commented: “These statistics may represent something of a watershed moment for the UK’s Capital Gains Tax regime, in more ways than one.
“Firstly, the fact that in the current economic context, when Government spending during the pandemic has left a large hole in the public finances that will ultimately need to be filled, annual CGT receipts in 2019-20 increased by a modest three percent, half as much as the previous year.
“This may increase the calls for a more drastic approach to taxing capital wealth – such as aligning the CGT rates with Income Tax rates as recommended by the OTS in November, or in the form of a one-off wealth tax that was recommended by The Wealth Tax Commission in December.
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“But what’s more the statistics potentially offer a glimpse into the future for the CGT regime, not to mention other taxes, in the figures relating to the new 30-day reporting service for CGT-liable property disposals, introduced in April 2020.
“The 75,000 taxpayers who signed, sealed and delivered over 80,000 returns to HMRC to report over £1billion in CGT liabilities may seem like a promising start to the new system, but underlying these figures were significant teething problems which were highlighted in the OTS’s second CGT report in May which recommended as a remedial action doubling the 30-day reporting window to reduce the administrative burden on people going through the complex process of selling a property.
“Nevertheless, real-time reporting and shorter timeframes for payment of tax is the clear direction of travel as it does have significant advantages from HMRC’s perspective in terms of tackling the tax gap and bringing forward tax receipts, and asset owners will need to ensure diligent record-keeping in order to meet the new reporting requirements.
“The statistics also show record amounts of gains on which Entrepreneurs’ Relief was claimed which is likely a reflection of the Chancellor’s decision in the March 2020 Budget to reduce the lifetime allowance from £10million to £1million of gains, prompting individuals to accelerate business asset disposals to get them over the line in the month before the changes came into effect.
Where IHT is due, it must be paid by the end of the sixth month after the person’s death.
If it is not paid by then, HMRC will begin adding interest to the debt.
IHT can be paid from funds within the estate, or from money raised from the sale of the assets.
However, Money Helper notes that in practice, most IHT is paid through the Direct Payment Scheme (DPS).