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How four wealth managers would reform IHT regime

We ask four wealth managers how they would reform the UK's most hated tax.

The UK's inheritance tax system is always the subject of intense debate.

Dubbed the UK's most hated tax, the complexity of the system is routinely lambasted.

Earlier this year the Office of Tax Simplification launched a consultation on the subject.

However, chancellor Philip Hammond did nothing to simplify the regime in last month's Budget.

We recently asked four wealth managers what reforms they would make to IHT.

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The UK's inheritance tax system is always the subject of intense debate.

Dubbed the UK's most hated tax, the complexity of the system is routinely lambasted.

Earlier this year the Office of Tax Simplification launched a consultation on the subject.

However, chancellor Philip Hammond did nothing to simplify the regime in last month's Budget.

We recently asked four wealth managers what reforms they would make to IHT.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

David Inglesfield

Head of wealth, KW Wealth, London

‘Good planning can minimise or largely eliminate inheritance tax (IHT) – it is sometimes said to be an “optional” tax. It is notoriously complicated, requiring extensive reporting to HMRC, yet 30% of estates worth over £2 million don’t pay it. The government makes about £5 billion a year from it, less than 1% of tax revenues.

‘With many of the richest paying nothing; and very little money being raised for the government, no wonder it’s being reviewed.

‘The problem is that IHT is levied at a rate which no-one finds reasonable; a 40% death tax on wealth which is not only hard-earned but has already been taxed, as income or capital gains, fails the common sense test.

‘A much lower rate – say 10% – would create much less incentive to avoid IHT and would make it justifiable to abolish many of the reliefs. About 200,000 people a year die but only about 25,000 pay IHT. A lower tax rate paid by, for example, 100,000 estates – with no exceptions – would make a better and fairer system.’ 

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Mark Parello

Chartered wealth manager and branch principal, Raymond James, Manchester

‘It’s been said that paying inheritance tax is voluntary – I agree with this statement for the super-wealthy who are far more mobile, enabling them to move to countries with favorable tax rules. They are also able to pay for professionals to create clever structures to protect their assets from IHT.

‘I do not think this is the case for the mass affluent market in the UK. The vast majority of an individual’s wealth in the UK is held in their home. We pay tax on our income, which we save to put a deposit down on a home, which we pay stamp duty on (another tax) and when we die and pass this asset on to our children, it is taxed again! It seems unfair to me.

‘I think paying tax is necessary to provide state run services such as NHS, armed forces, schools etc. I do think however that paying IHT on assets we have saved, out of income we have already been taxed on, is not right.

‘In answer to the question of how should the IHT system be reformed, I would like to see inheritance tax abolished!’ 

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Alex Davies

CEO and founder, Wealth Club, Bristol

‘The government has mooted changes that would simplify inheritance tax; while I support any moves to make the system simpler, I would caution using this as a back-door way of increasing tax revenues. Efforts should instead focus on abolishing the hugely complicated and unfair residence nil rate band.

‘One feature of this band sees those without children or grandchildren missing out on concessions since the property must be passed to a direct descendent. I would like to see one simple £500,000 allowance. In a similar vein, gift allowance should be replaced with one £5,000 a year allowance rather than current rate of £3,000 and a handful of smaller gifts. On the flip-side, the government shouldn’t meddle with the IHT benefits for investing in AIM-listed businesses.

‘AIM is a vital source of long-term funding to fast-growing small to medium sized firms. These companies create huge numbers of jobs and are a source of economic growth and innovation.

‘Ultimately, money talks, and AIM companies made a significant tax contribution of £2.3 billion to the exchequer in 2013 and employed more than 430,000 people.’ 

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Luke Bagshaw

Partner, S&T Asset Management, Stockport

‘Inheritance tax can seem unfair, as it is likely most of the assets will have already suffered several taxes previously. Unfortunately, many of the individuals subject to the tax are not always ultra-rich but above the allowance due to property price inflation. While the recently introduced residence nil rate band will help, it still leaves many exposed.

‘I expect, however, that IHT will remain in one form or another, but the rather meagre £3,000 annual allowance could be increased, encouraging individuals to gift more away within their lifetime. Some even believe the £3,000 is their absolute limit, rather than the gift just being a potential exempt transfer should they die within seven years.

‘In the meantime, investing in qualifying AIM shares can be a great way for some to reduce a potential IHT liability while retaining control of the assets. We have managed AIM portfolios for several clients who, after two years, have effectively moved these assets out of their estates for IHT purposes and made some attractive gains.’

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