Times are tough for the Treasury. Stamp duty revenues have dried up completely as transactions in the property market have plummeted. The banks aren't likely to be paying much tax for the forseeable future and revenues from their employees aren't likely to be particularly high over the next few years, either. At the same time rising unemployment will soon hit income tax revenues and collapsing profits across the UK economy will slam corporation tax receipts. Then there is inheritance tax: thanks to the introduction of transferable allowances between married couples, the government expects the overall take to fall from £4bn last year to £3bn this year. No wonder, then, that the search is on for soft revenue targets.
That's been bad news for Britain's top female skier Chemmy Alcott, says The Daily Telegraph. Her mother died unexpectedly recently, leaving her and her brothers a £600,000 inheritance tax (IHT) bill. To pay it they must sell the family home. That might have been fine a few years ago, but things aren't so easy these days: the house isn't selling and until they get their hands on the cash they are stuck paying interest on the money owed to HRMC at £1,500 a month. Worse, the house would have been valued for inheritance tax purposes immediately after the death now some 18 months ago. And it most certainly won't be worth the same now as it was then property prices have fallen by 10%-plus from their peaks already and will certainly fall further. If a house is sold for less than the value on which IHT is paid within four years of a death, an HMRC spokesman told The Daily Telegraph, the payees "may be able to make a claim for IHT 'loss on sale' relief". Note the word "may": it leaves open the possibility that many families, stuck with unsaleable properties in a collapsing market, "are in danger of paying significantly too much tax", says Savills' probate expert Simon Aldous.
This is probably no time to be hoping for gentle treatment from the tax authorities, something that suggests the best way of dealing with them is to make arrangements to get as much capital as possible out of the IHT net in advance. This suggests that parents should hand over valuable items (paintings and the like) to children long before they hit their 70s (anything gifted seven years or more before death is exempt from IHT); that they should make all allowable gifts possible (£3,000 per person per year plus £5,000 on the occasion of a marriage); and give as much out of income as they can. Any gifts made after tax income that do not affect the lifestyle of the giver (ie, they are made from "excess income") are exempt from IHT something that suggests older people are much better off investing for income rather than capital growth, and then giving that income away as it comes in.
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