UK households attempting to evade an inheritance tax bill from HMRC could lose THOUSANDS. Families are mistakenly taking out an expensive form of debt in order to avoid inheritance tax, an expert has warned.
In the October Budget, the Labour Party Chancellor, Rachel Reeves, froze inheritance tax thresholds and made pensions liable for the 40 per cent charge, meaning thousands more families will be dragged into the net over the coming years.
As a result, wealth managers have seen a surge in over-55s considering using equity release to lower their inheritance tax liability and give money to their families.
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Nick Flynn, of pension company Canada Life, told the Telegraph of the dangers. And Simon Chalk, of equity release adviser Laterlivingnow, said: “Since the Labour government took power, this has become a much hotter topic for our clients, with the driver being to make significant lifetime gifts to family – often for buying or extending their own home.”
Flynn, of pension company Canada Life, told Telegraph Money: “We are having more and more conversations with advisers on the impact of reducing the value of their clients’ estates via releasing property wealth. While it is early stages and it is not the only solution, gifting from property wealth is back on the agenda.”
Ian Dyall, of wealth manager Evelyn Partners, says someone who lives much longer than the seven year period they end up paying even more interest and any saving they may have made on inheritance tax will be wiped out.
“In effect, you end up with a window of time that you need to die within to make the strategy work,” he said. One Telegraph reader said they looked into releasing £500,000 from their property in order to avoid a £1m inheritance tax liability, but decided against it after realising the debt would grow to £1.2m after 15 years.
The reader said: “The liability will become huge due to the compounding effect of paying interest on interest. It still might be an option but probably not for another 10 years or so and it would depend on health, interest rates and so on.”
Mr Chalk said: “I’d be very concerned about someone running the risk of leaving themselves short of accessible funds for their own personal use in future, thinking about the financial burden of meeting one’s own social care, for example.”
