3 Months to Protect Your Legacy

Slowly, the layers of the onion start to peel.

The true meaning of Starmer’s campaign mantra ‘no tax rises for working people’ becomes clear. What he meant was no tax rises for the working class, plenty for the middle class.

He owned up to VAT on private school fees, a politics of envy tactic that no economist thinks will make a material net difference to the Treasury tax take. The rest will be revealed over the next three months leading up to the Autumn budget by our first female chancellor, Rachel Reeves. Apparently she is parsimonious by nature, limiting the celebrants on election night to a single free drink at the Tate Modern after party. This is the same person who then gave a 22% pay rise to junior doctors…

If her first tactic of claiming to be shocked by her inheritance from the Tories is anything to go on, we can rest assured that truth and transparency will remain in just as short supply from this government as we have grown used to for a decade and a half. With government spending a matter of public record, this reminds us just what fools our leaders take us for. Even Jeremy Hunt, who never struck me as the sharpest occupant of 11 Downing Street, has called out her blatant manipulation of the facts to lay the groundwork for the coming tax hikes.

My crystal ball is no better than yours, but really her options are limited to three main areas of tax – capital gains, pensions and inheritance tax. The Tories In Name Only have already obliterated capital gains allowances, so the obvious target there is to raise the tax rate. The worst case scenario is probably aligning it with income tax so it could more than double to a maximum of 45%. Unless she’s an admirer of Comrade Trudeau in the People’s Republic of Canada where CGT now goes up to a nosebleed 67%.

What about pensions? The industry is betting on the re-imposition of the lifetime allowance – HMRC is so confident of this that they haven’t bothered updating their internal procedure manuals. Scrapping higher rate relief on contributions would play nicely to the left wing of the Labour party and their trade union funders. Maybe a reduction in the maximum amount you can contribute each year.

But it’s the inheritance aspect of pensions that has me most worried.

If you need an example of the complexity, stupidity and lack of joined up thinking in the mammoth British tax code, look no further than the grisly process that ensues when you shuttle of your mortal coil. If you’ve been anti-socialist enough to accumulate some assets during your three score years and ten, the post-death process is the punishment. Not so much for you, but for the loved ones you leave behind.

What used to be called Death Duties is becoming big business for the government. Time was when only the landed gentry needed to worry about such things. I first came across the concept in a PG Wodehouse novel. In the 21st century, it’s rapidly becoming the biggest challenge to Beaufort’s core mission of helping our members to create and protect multi-generational wealth.

Between 2022 and 2023 the number of families hit by Inheritance Tax rose by 24% to 41,000. In total they paid an eye watering ￡7.5 billion to the Treasury, a new high for the second year running. Even that headline figure hides the administrative nightmare that thousands of middle class families must now endure.

The pathetic IHT allowance of ￡325,000 has not been increased in a generation, except for the family home allowance bringing it up to ￡500,000. So any family that owns a property in South East England is likely to fall into the IHT trap. And, let’s face it, for many families they are asset rich and cash poor, eking out their retirement in a nice home on which the mortgage was paid off years ago.

Here's where the Mighty State turns a drama into a crisis. The IHT due on their dearly departed’s estate is a greedy 40% and must be paid within six months of their demise. But, guess what, you can’t sell the property to pay the tax until you’ve been granted probate over the estate. And how long can that take? Oh, twelve or eighteen months if you’re lucky. Given that the Probate Registry is probably working from home and about as productive as a Soviet 10 Year Plan, good luck getting them to rush your paperwork through the system when they already admit to a major backlog. ???????

If there’s not enough cash in the estate, families are forced to take loans or negotiate an instalment plan with the Bank of HMRC. They will demand at least 10% in month 6 and then charge 7.75% interest on the balance over ten years. Some banks offer probate loans at much higher interest rates than regular mortgages, or you might have to resort to a bridging loan on your own property.

Did I mention joined-up thinking? Your executors have 12 months to declare the IHT position on form IHT400, but only 6 months to pay the tax. We are truly governed by cretins.?? ?

The best hope of your children being able to deal with the IHT bill is that, under current rules,? your pension passes through to them free of Inheritance Tax. If you are considerate enough to die before you reach 75, your inheritors can take funds from your pension without paying income tax. Make it to 76 and any drawdowns will become taxable at their marginal rate.

Even this option may be under scrutiny by the lady already being dubbed the Iron Chancellor. She has backing from the Institute for Fiscal Studies which reckons she could trouser ￡1.9 billion a year by bringing pensions into the IHT calculation. That would pay quite a few junior doctors…

So now we have a deadline. You have until Wednesday 30th October to sort out your affairs. I suggest you assume the worst so that you wake up on Halloween pleasantly surprised. Do nothing and your children may come to curse you in the years ahead. Remember, everything you leave behind has already been taxed at least once. Do you want to give almost half of what remains to our political leaders on either side of the divide? Do their pet projects deserve it more than your children?

Speak to your chosen tax planning expert today and get the process moving in the few weeks that remain to be on the front foot. Or join Beaufort Society and we’ll introduce you to the chartered tax planners that we work with.

Until next time.