Double death tax shock as Labour plots to tax inheritances TWICE | Personal Finance | Finance

PM Keir Starmer and Chancellor Rachel Reeves repeatedly refused to say if they would hike inheritance tax (IHT) if they won the election. Their silence was viewed as suspicious by many.

Large numbers of party members would love to see IHT made more punitive, as they believe this would strike blow against generational inequality.

Today, we have no idea what will happen. That may soon change, though, with Reeves set to deliver her first Budget at some point between September and November.

During the election campaign, former chancellor Jeremy Hunt warned that Labour may not only charge IHT when people die.

It may charge them capital gains tax (CGT) too. That remains a live threat with Reeves now in charge of the nation’s finances and her advisers such as Sir Edward Troup calling for more punitive taxes on the elderly.

Today, any CGT liability is wiped out when people die.

Instead, the total value of the assets will fall into their estate and may potentially become subject to IHT.

That could change, with disastrous effect for many.

Soon, grieving families could face both a CGT and IHT bill at the same time, savaging wealth.

A family inheriting a £1.5million estate that included a £111,000 gain would pay an additional £26,000 in tax under the move, analysis from wealth manager Quilter has shown.

Now that Labour has won the election with a huge majority, it can do what it likes.

Today, everybody can pass on £325,000 to loved ones free of IHT, under the nil-rate band.

That may sound generous but has been frozen since 2009, while share values and property prices have risen steadily. This has pushed more families into HMRC‘s clutches.

Inheritance tax bills are at a record high, with receipts hitting £7.5billion a year. They’re on course to hit £9.7billion by 2028, the Office for Budget Responsibility has predicted.

That’s despite the introduction of an additional £175,000 IHT-free band, which applies when passing on the family home to direct descendants.

With careful planning, families can pass up to £1million of wealth free of tax. Thereafter, IHT becomes punitive with a 40 percent charge on any surplus.

Capital gains tax bills are also rising, topping £16.7 billion in the past tax year. Labour is expected to increase CGT rates to bring them into line with income tax, which would bring in a further £8billion a year.

Higher rate taxpayers could soon pay CGT at 40 percent, while additional rate taxpayers would pay 45 percent.

Applying both CGT and IHT to the same wealth would send bills through the roof. The Institute for Fiscal Studies reckons it could bring in another £1.6billion a year.

Left-wing think tank The Resolution Foundation is a pretty reliable guide to Labour Party thinking, and regularly advocates tax raids on wealth.

It has previously slammed what it calls capital gains tax “forgiveness” on death, which it would like to see scrapped. It argues that this can “distort decisions about when to dispose of assets”.

During the election campaign, Labour denied Hunt’s claim. Unfortunately, we can’t rely on what Starmer says when he wants to be elected, as Jeremy Corbyn discovered.

Now that it’s in power, we will soon discover the truth. Families face an anxious wait before the next Budget. Especially since this isn’t the only IHT threat families face.

I still reckon it will impose IHT on unused pensions. We’ll find out soon enough.

Either way, families need to prepare themselves. Here are five things they should consider doing today.

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