‘Accidental millionaires’ are being forced to pay a larger amount of their inheritance than the ultra-rich.
Figures from the Office for Tax Simplification show that, in 2015-16, bequeathed estates worth between £2 million and £8 million paid a rate double that paid on estates greater than £10 million.
Someone who inherited a sum of £2 million (now the value of many houses in the South East), for example, would pay an average of 20 per cent of the total in inheritance tax (IHT), compared to just 10 per cent of a £10 million estate.
The reason for this is because business and agricultural property reliefs provide 100 per cent exemptions on qualifying assets, helping larger estates to reduce their IHT bills.
Whilst a new ‘family home allowance’ was introduced in April 2017, aimed at providing added protection for those passing on their home to direct descendants, experts say the effect of the reliefs are unfair and are calling for a ‘tiered approach’ to IHT which reduces the rate for estates that fall into the ‘accidentally rich’ category.
No matter who you decide to leave your estate to, the tax implications of transferring wealth cannot be ignored. Professional advice should therefore be sought to protect your wealth, secure the financial future of your beneficiaries and plan for IHT, a legitimately avoidable tax. We do however recommend that planning starts as early as possible.