Inheritance tax “ready for reform” as Justice Department reviews estate planning rules | Personal finance | Finances
Inheritance tax (IHT) costs are often managed through wills, which ensure that no more taxes than necessary are paid and assets are passed on to the intended beneficiaries. Wills can be made and processed through the use of certain professionals, many of whom suggest that government changes on the pandemic issue have had limited impact.
Remote viewing of Wills is a useful option, but not a “game changer”
A survey conducted by the Law Society of England and Wales on the question of whether to extend the remote notarization of wills beyond January 2022 found that only a small proportion of attorneys have chosen to use it for their clients. Under current law, the signatures of two witnesses are required in the physical presence of the testamentary (testator).
In July 2020, the government took action to allow remote wills via video to meet demand and facilitate decision-making during the pandemic. The changes were made retrospectively from January 2020 and are valid for two years.
In the future, the MoJ will shortly examine whether it will extend the remote certification of wills beyond January 2022. Stephanie Boyce, president of the Law Society, commented on whether this was a worthwhile endeavor.
She said: “We have been cautious about the law when it came into effect last year as it could assist people who wish to make a will when the physical presence of witnesses is not possible, provided that the government ensures law designed to minimize unintended consequences and maintain wills validity. “
The Law Society surveyed 630 attorneys about their views and experiences with using wills remotely during the pandemic, and the results showed that demand for this option is limited.
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The results showed that 95 percent of those surveyed wrote wills during the lockdown, but only 14 percent who wrote wills used remote witnesses.
Of these, the vast majority (78 percent) had either a positive or a neutral experience. 58 percent said they would use remote witnesses if it were still an option after the pandemic, 35 percent said they would not, and seven percent said they did not know.
Around three quarters (73 percent) of all respondents said they did not use a remote witness after the pandemic. They cited an increased risk of undue influence and future claims, and said it was more difficult to gauge their customers’ decision-making ability when the process was conducted remotely.
Ms. Boyce concluded, “While remote witnessing has not dramatically changed the attorney’s approach to making wills, it has been a useful option in certain circumstances. Lawyers have to help decide what is in the best interests of their clients.
Therefore, the Law Society continues to believe that the most effective legal reform in the long term would be to give judges the authority to recognize the deceased’s intentions even if they have a will that may not be in accordance with the Wills Act your estate is inherited as intended.
“We look forward to the upcoming Legislative Committee’s report on will reform, due in the next two years, which we hope will expand on these and other issues to improve public policy in England and Wales.”
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Missed opportunity – government rejects inheritance tax reform
That poll came at a time when the government decided to leave other areas of estate planning unchanged. This week the government decided not to make any of the changes proposed by the Office of Tax Simplification to the IHT, particularly those related to gift allowances and the Residency Zero Rate (RNRB).
According to an analysis by NFU Mutual, this is a “missed opportunity” to simplify some of the rules and make the tax fairer and easier to understand. Sean McCann, Chartered Financial Planner at NFU Mutual, argued that IHT was “unnecessarily complicated and ready for reform”.
There are currently a number of gift options available to taxpayers looking to cut or cap their IHT bills. These include gifts for marriages, children, and political parties.
McCann warned, however, that gift giving rules are often misunderstood and underused.
He continued, “There are currently a variety of tax-free gifts that are available to be claimed, but many people are unaware of them and so do not use them. The Tax Simplification Office has recommended replacing this with an annual tax -free gift allowance that makes IHT easier to understand and plan. “
The government also refused to change the existing RNRB rules, which in turn excludes many Britons from tax breaks. Finally, Mr McCann explains how these rules work and what could have been changed to make the system “fairer”.
He said: “The zero residency rate – which allows individuals to leave a direct descendant up to £ 175,000 of the value of their home tax-free – is another area that creates significant confusion, especially when someone is downsizing or moving into care.
“Since there are only ‘direct descendants’ available, anyone without children cannot pass on so much tax-free.
“Removing zero residence rates and increasing the tax-free allowance from £ 325,000 to £ 500,000 for everyone would not only simplify the tax but also make it fairer.”
Failure to act in these areas and other elements of IHT planning could cost the British dearly in the years to come, as the number of families paying IHT is expected to nearly double over the next five years. Those predictions come as the British are already paying record-breaking IHT amounts to HMRC.
In late November, HMRC released statistics showing that IHT was paid £ 3.6 billion to the government between April and October 2021. This was £ 600 million more than in the same period last year and corresponds well to the total amount paid in 2020/21 at £ 5.4 billion.
IHT revenues have been rising steadily since at least 2021 and, according to NFU Mutual, up to £ 7.6 billion can be paid to the state in 2026/27.
Additionally, the total amount of taxes paid to the government has skyrocketed in recent months, with Myron Jobson, a personal finance activist at Interactive Investor, commenting on how the pandemic has affected tax bills.
He said: “The tax official secured a bumper deduction for the first half of the fiscal year – but the numbers are badly skewed by the pandemic as much of the economy stalled over the past year due to COVID-19 restrictions.
“The spike in government IHT revenue feels unsavory in the context of the pandemic, and the freeze of zero and zero rates for residences through at least April 2026 means those bills are likely to keep rising and feeling increasingly like raiding hard working families (which were already taxed at the time of their income) rather than the very wealthy that it was originally aimed at. “