Chancellor Rishi Sunak could make big changes to inheritance tax, impacting many savers in the UK amid the economic downturn from the pandemic. The economy suffered its biggest slump in over 300 years in 2020, although the UK has narrowly avoided a double dip recession. Britain’s GDP dropped to 25 percent lower in April 2020 than it had been two months earlier in February 2020. Economic activity picked up over the spring and summer, reflecting the opening up of the economy and pent-up demand from the first lockdown.
This was followed by a further short-lived lockdown in November. GDP was nine percent lower in November than before the pandemic.
The new restrictions imposed over New Year and into 2021 resulted in another contraction.
As a result, Mr Sunak has repeatedly hinted that there will eventually be a price to pay in the form of tax hikes, with inheritance put forward as a potential avenue to raise funds.
The Wealth Tax Commission suggested a tax on people with assets of more than £500,000, or £1million for a couple, including their family home and pension, to pay for the pandemic.
A recent report published by the Office of Tax Simplification, commissioned by Mr Sunak, suggested rises in capital gains tax which could impact inheritance duties.
Sherad Dewedi, managing partner at Yorkshire-based Accountants and Business Advisors, warned the Government “may have no choice” but to raise taxes.
Lesley Davis, partner in the private client team at law firm Shakespeare Martineau, said in November that the Government seems to be setting its sights on the capital taxes including inheritance and capital gains tax.
She said: “Both are easy hits, as exemptions can simply be withdrawn or removed. However, doing this leaves the taxpayer fully exposed.”
Ms Davis suggested potentially exempt transfers, which currently allows individuals to make gifts of unlimited value to friends and family members without being hit with any inheritance tax liabilities if you live for a further seven years, could be abolished.
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Ms Davis suggested lifetime gifts should be made now either directly or into a trust could offer some protection and that people should also ensure they have properly structured wills that provide the flexibility to move with changes to tax rules.
Richard Murphy of Tax Research UK warned against increases in an interview with Express.co.uk last year.
He said: “At first, Rishi Sunak completely underestimated what was going to happen, it was a complete disaster, because he hadn’t realised how disastrous coronavirus was going to be.
“But he was back a week later with the furlough scheme, it was smart, quick, some people lost out when they shouldn’t have done.
“Now Sunak’s obsession with debt is kicking in again.
“If he opts for austerity and tax hikes, then frankly we are heading for depression rather than a recession.”