Rachel Reeves, the Chancellor, has made changes to inheritance tax that have caused many Brits to take action to avoid paying more taxes. Land Registry data shows that the number of properties gifted to family members has increased by more than 45% to around 220,000 a year. Under current rules, families can give large sums of cash and assets tax-free if done seven years before death.
Inheritance tax is 40% on assets left by someone after they die. Sales of annuities have also gone up.
Families gifting homes to avoid taxes
By taking out an annuity, a saver’s pension cash is no longer invested, and the only tax is income tax, but only if the pension income is more than a saver’s personal tax-free allowance. Pete Cowell from Standard Life said, “We anticipate demand for annuities will remain strong, particularly with changes from the October Budget bringing pensions into scope for inheritance tax from 2027. The change will likely encourage wealthier savers to access more pensions, and annuities are proving an attractive way of doing so.”
Families also rush to pass on family homes to their children to avoid big inheritance tax bills.
David Fell from Hamptons said, “Rising stamp duty bills for anyone buying a second property have been coupled with higher capital gains tax rates and lower personal allowances, which have also been eroded further by inflation.
The number of properties given away each year is expected to increase from 130,000 to around 220,000 by 2024. Properties given three years before death are taxed at 40%, and gifts made between three and seven years before death have taxes that go down over time. As Britons look for ways to pay less inheritance tax, these financial strategies show the growing unhappiness and the steps taken to protect family wealth as tax rules change.
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