Inheritance tax – interest rate increase
Until 29 September 2009 inheritance tax enjoyed something of a privileged position. The rate of interest charged on underpaid inheritance tax was the same as the rate of interest that HMRC would pay in respect of overpaid inheritance tax. Where other taxes are concerned, the rate of interest that HMRC pay on overpaid tax is lower than the rate charged on underpaid tax.
That has now changed and taxpayers will lose out. The amount of additional revenue generated as a result will not be great so this seems a rather mean spirited change, especially when one considers who the change will primarily impact on. Late-payers will be affected, of course, but the main losers will be taxpayers who take advantage of the facility to pay inheritance tax on certain assets by ten annual instalments. This facility is generally available in respect of land and buildings, and shares in family companies and apparently exists to enable a person who inherits assets of this nature to keep the asset instead of being forced to sell it. Although the taxpayer is given ten years to pay the tax, the instalments attract interest. That interest rate has now increased.
The typical loser from the recent change will be an unmarried son or daughter who lived with his or her parents until their deaths and inherited the house that they all lived in. It may be difficult to find the money to pay the inheritance tax on the house but the son or daughter might just about manage to pay the tax and stay in the home if the payments are spread over ten years. Increasing the rate of interest payable in this sort of case might make the difference between being able to stay in the home and being forced to sell.
This change came into effect shortly before Mister Darling announced that, contrary to what had previously been said, the inheritance tax nil-rate band will not be increased next April. Revenues from inheritance tax have dipped (in line with falling asset values) and the latest changes may be seen as an attempt to prop up the amount received.
As always, therefore, it makes sense to keep your affairs under review and ensure that, if or to the extent payment of inheritance tax cannot be avoided, sufficient funds will be available to pay the tax.
Paul,
It does seem mean spirited and a little unfair.
If it is not going to make a scratch let alone a dent on the budget, but possibly cause distress, why do it?
Have you been advising on the changes and have you seen the affects as yet?
Rob