The area of inheritance tax (IT) has been under siege from critics recently. Normally, taxes on this area tend to be only applicable to those exceeding the established threshold by the existing law. And traditionally, the said threshold tends to be considerably high, such that only the wealthy would be covered by such taxes. However, there are some criticisms about the said tax affecting the middle income residents of UK, especially homeowners. Homeownership has become considerably costly for people that it tends to cover the thresholds held by inheritance tax laws.
II. Inheritance TaxThe purpose of implementing taxes like the IT has been characterised as a means to “counterbalance” the inequality of wealth in Britain. ( 2004) This shows why the middle income homeowners of UK tend to be greatly affected by the said tax. However, there are means of avoiding the payment of IT. As (2004) indicated in his article, those with “moderate wealth” tend not to avoid this because their dwellings may probably be their main asset. This means that it would be rather impracticable to give that asset away before they die just to avoid the tax. Nevertheless, proper tax planning could specifically help these people of “moderate wealth” to deal with the financial duties that the government require of them through IT.
A more pressing issue at this context is that the wealthy have the means to dodge the IT through the “loopholes” it offers them. ( 2005) In a sense, information regarding tax planning may only be viable for the wealthy because they have unmitigated access to legal consultation and advise as opposed to the rather limited access of the middle class homeowner. Moreover, it only shows that the difference between these individuals is their initiative to reduce their liabilities. And with the presence of internet and web technology, information regarding these actions is readily accessible to everyone.
III. Public PerceptionTaxpayers in UK appear to see the imposition of the IT as unfair in general. This is supported by the article of (2006) based on a poll made in 2006. The study noted that ¾ of the respondents (3,200 people) indicated that IT was indeed unfairly imposed on them. Currently, the threshold is £285,000 which could easily be met by the regular homeowner with the rising prices of homes and dwellings in the market. (2005) claimed in her report that one in every ten houses in Britain would be liable for IT. The report claimed that over 12% of the entire homeowners in Britain have acquired their homes by paying over the threshold held by IT. Moreover, (2006) also indicated that most of the respondents (39%) are aware of this threshold. This means that this information is only limited to a small number of individuals in Britain. Most of them will thus not be able to dodge the taxes imposed by IT when they transfer their wealth to their kin.
IV. Lack of Awareness of Tax Planning
Tax planning measures could still allow for every homeowners in UK, be it affluent and those of moderate wealth, to deal with IT. Tax planning regarding their assets tends to cover the accumulations of all assets and liabilities of an individual and assessing whether it is covered by the threshold held by the IT. This means that knowing how much one’s asset is worth beforehand tends to reduce the possibility of paying for IT. In the same time, upon knowing whether one exceeds the threshold, then certain courses of action could be taken.
For instance, married couples could avoid paying inheritance tax if they pass on their wealth to their spouse. This is similarly applicable to those who have registered under civil partnership. Another tax planning measure that could protect homeowners would be acquiring a home as joint tenants. This may be best implemented for married couples. This means that the spouse gets the whole ownership of the property tax-free the moment the other partner dies.
Another alternative would be the acquisition of investments for relief. However doing such will only provide favourable treatment and not entirely avoid the IT. This means that this will only be a means to reduce the amount of IT that a person is required to pay. This is the same with using up the assets to trusts as a part of tax planning. Other measures like the provision of gifts worth £3000 annually could reduce the liability of paying in the IT. However, it is required by law that doing such actions should last at least seven years before one dies such that these escape the overall amount paid for IT.
These actions are less likely to be known by the lay individual. The lack of awareness of those of moderate wealth tends to be the key to their loss in terms of paying for inheritance tax. This is confirmed by the report of (2006) indicating that only 39% of the 3,200 surveyed were aware of some of these measures in reducing their liabilities in IT.
V. ConclusionThe discussions above have presented the measures for those with moderate wealth to minimise the effects of Inheritance Tax. Basically, planning does have a huge say in the amount on which an individual would pay once wealth is transferred when he/she dies. Making the public aware of the basic information regarding these measures could help a whole lot of UK homeowners. In the same way, constant vigilance among these middle class homeowners regarding their rights and entitlements is also required such that they could plan how their kin avoid paying for these taxes.
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