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Inheritance tax and capital gains tax bills to SOAR as Sunak snubs reform of hated levies


In March, Chancellor Rishi Sunak froze the threshold at which you pay both inheritance tax (IHT) and capital gains tax (CGT) for five years. Rebecca O’Connor, head of pensions and investments at Interactive Investor, said: “Both taxes will steadily take more and more of our money.”

Many still believe that inheritance tax and capital gains tax are only aimed at the rich.

However, Sunak’s decision to freeze them both until the 2025/26 tax year (and possibly beyond) will steadily change that.

As the value of property, shares and other assets rise, more ordinary people will find themselves paying IHT and CGT.

Worse, planning is tricky, because both taxes are highly complicated and crying out for simplification, experts say. Yet that’s what the Treasury has now refused to do.

Inheritance tax is charged on the total value of your assets when you die, which includes your home, shares, Isas, and other valuables, with the exception of your pensions.

It is charged at a punitive 40 percent on wealth above £325,000, although the main residence allowance means you can pass on a further £175,000 of your main home’s value to direct descendents IHT-free.

That may sound generous but last week we revealed that the average homeowner with a £270,000 property could be liable to pay IHT within the next few years.

IHT was originally aimed at super wealthy people but they can afford expensive tax planning to escape a bill, ordinary people all too often end up in a muddle.

Which means they’re the ones who get stung.

Yet Sunak has decided against reform, even though the Office for Tax Simplification has been examining ways of tidying up this messy tax.

READ MORE: Homeowner inheritance tax nightmare – average £270,000 property risk

HM Revenue & Customs (HMRC) expects to collect £9.2 billion in CGT this tax year. By 2026/27, the Government expects that to double to nearly £20 billion a year.

Again, it is highly complex, with different bands depending on the asset you are selling and your income tax band, but long overdue reform has been shelved.

The only good news is that the Treasury did not increase CGT rates, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

Reform is still urgently required, though. “CGT is in dire need of simplification,” she said, adding that failing to reform IHT was another missed opportunity.

That’s a missed opportunity for taxpayers, not HMRC.

Receipts from both taxes are set to rise steadily over the next five years. So plan now to reduce your exposure or risk a shock bill in the years ahead.

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