‘Pay before you die’ inheritance tax

HM Revenue & Customs are considering introducing an ‘accelerated payment’ scheme for inheritance tax.

This would result in some people paying inheritance tax before they die, if they are suspected of trying to avoid the death tax by using complex planning schemes.

HMRC are consulting on the plans in response to a growing number of families who are using potentially illegal tax avoidance schemes to avoid paying inheritance tax on the value of their estates.

It would introduce a system similar to that recently created for aggressive tax planning using film schemes, which resulted in investors paying their tax bill in advance and receiving a refund should the scheme prove valid following a court case.

Conservative pledge

Inheritance tax is currently charged at 40% on the taxable value of an estate, with a nil rate band of £325,000.

Couples can also use any unused nil rate band from a deceased spouse or civil partner, which creates an effective nil rate band of up to £650,000 in many cases.

It was a Conservative party pledge ahead of the last general election that this nil rate band should be increased to £1m, but the policy was not adopted by the coalition government.

Seeking views

According to HMRC: “We are seeking views on tackling inheritance tax avoidance schemes. This is an ongoing consultation and no final decisions have yet been taken.

“The proposals in the consultation paper will only affect a small minority of wealthy individuals who actively seek to avoid inheritance tax.

“Couples would still be able to leave up to £650,000 tax free to benefit their children or grandchildren.”

Simple & effective

In our experience, the most effective tax planning steps tend to be the simplest.

Using complex and often untested tax avoidance schemes can result in delaying rather than avoiding tax bills, with the (usually expensive) costs of professional advice rarely recouped when schemes fail.

Do speak to us to find out how we work with clients to quantify the amount of inheritance tax your estate will suffer, understand your Financial Planning priorities and recommend suitable and effective tax planning strategies.

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