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Death and Duties | The Most Unwelcome of Inevitables
Inheritance tax (IHT) has long been a polarising subject in the United Kingdom. Over the years, IHT has been the subject of fierce debate and faced scrutiny, on all ends of the political spectrum, for both its impact on wealth distribution and the burden it places on heirs.
And yet, despite being levied on a very small portion of the population and generating relatively little in tax revenue, this tax is supposedly considered ‘unfair’ by half of the taxpaying population of this country. But what is all the fuss about? Perhaps it is our cultural resistance to the discussion of death or we really are, as a nation, so deeply opposed to the concept of a perceived ‘double taxation’.
In this article, we delve into some of the detail and also point you to our recent video in which Ben Rosen canvasses the views of the public on this divisive issue.
The Fundamentals
Inheritance Tax is a tax on the estate of a deceased person, including their property, money, and possessions. It is charged at a rate of 40% on the value of an estate above a specific threshold, known as the ‘nil-rate band’, which currently stands at £325,000. Any assets above this threshold are subject to the tax, although there are various exemptions and reliefs available, such as the spouse exemption, the residential nil-rate band for primary residences and business/agricultural property relief.
The Divisiveness of Division
What are the arguments that cause such division?
Wealth Distribution
Those in favour advocate for its power in redistributing wealth by preventing the concentration of assets within a select few families. By imposing a tax on large estates, they argue that it promotes a fairer society and ensures that the wealthy contribute their share to public finances.
Burden On Heirs
Critics often highlight the emotional and financial burden it places on heirs. Losing a loved one is already a difficult time, and the added stress of navigating Inheritance Tax and dealing with lawyers can be overwhelming. Heirs may need to sell assets, such as family homes or businesses (often with a sentimental connection), to cover the tax bill, leading to concerns about the potential destruction of family legacies.
Tax Planning
Many point to the ability for wealthier families to instruct lawyers and tax advisors to assist in mitigating their exposure to IHT. This has fuelled debates about the fairness of the tax, as critics argue that it disproportionately affects those who are less able to engage in such planning.
Regional Differences
There are significant regional variations in property prices across the UK, particularly given that prices in London and the South East are significantly higher than in other parts of the country. However, the increase in property prices has brought many estates into the scope of IHT for the first time, despite those families not being ‘wealthy’ in the traditional sense, other than through passive wealth expansion through bricks and mortar. This means that families in these regions are more likely to be affected by IHT, leading to concerns about regional disparities.
Some Closing Thoughts
As you will see from this article and the video, the subject to IHT provokes a strong and impassioned reaction in many.
Whatever form it takes, IHT will always remain a polarising issue due to its complex interplay with wealth distribution, the emotional burden on heirs, tax planning strategies, and regional disparities in property values. While some argue that it plays a crucial role in promoting fairness and funding public services, others believe it requires reform to address its shortcomings, and reform is unlikely to lessen the volume of the debate!
For tax and private client advice and services, please contact Ben Rosen via our contact form below.
Saudi Arabia and Football – Alluring Yet Possibly Taxing!
Cristiano Ronaldo at the ripe age of 38 earning £170 million, who could blame him? What has followed, however, is a revolution of sorts, with dozens of top flight footballers in the peak of their careers following suit to Saudi Arabia.
Few British footballers have historically looked beyond the Premier League and yet, in almost an instant, the allure of playing football in foreign leagues has gained real traction, with Saudi Arabia emerging as the number one overseas league this summer owing to its ever-increasing global prominence and substantial salaries on offer. Forever the ones to crash the party, here comes a tax lawyer to sound the alarm. Yes, I am going to say it…the magic words ‘tax-free’ may be more taxing that you initially think.
UK Tax on Worldwide Income
To understand why, let us think about how UK tax generally operates in the context of the world of football. Even though Saudi Arabia does not charge income tax, that doesn’t mean you are totally outside the income tax net. As a starting point, if you are UK resident then you will very likely be subject to UK income tax on your worldwide income. Becoming non-UK resident can, of course, exempt our favourite footballers from UK income tax, but you have to pay close attention to the rules, really adhere to them and keep records of how you are getting on.
Taxing Player Businesses Outside Football
This is not just about employment income. As football aficionados will know, footballers derive their income from several sources, not all of which are employment related ie footballer kicks ball for club and club pays footballer money. Footballers will often generate substantial income from image rights and commercial endorsements.
What if the footballer has a company into which such income is paid and the company is UK incorporated – yes, you guessed it – ongoing exposure to UK tax. Going to Saudi Arabia, even as a non-UK tax resident is not going to eliminate all UK taxes, necessarily. Again, what if a player receives a signing bonus.
This will again come down to timing and the player will almost certainly be taxed on the basis of their UK residence at the time of receipt. So the question is how to address these structures to ensure they work tax efficiently when transfers dealings can happen, practically, overnight!
Our Conclusion
These rules can be tricky, particularly where players return after a complete season but half way through a tax year. Navigating the web of tax rules, as with any internationally mobile high-net worth individual, is essential to avoid any unwelcome surprises from the taxman back home. By keeping advised and well informed, players can rest easy and focus on the game. Who knows how long the bonanza will last, but where there is movement, there will always be tax implications!
For Private Wealth & Tax advice and services, please contact Ben Rosen via our contact form below.
How British Taxpayers Feel About The Non-Dom Regime | Lawyers On The Beat
What Do We Mean When We Talk About Non-Doms In The UK?
A non-dom, short for non-domiciled individual or non-domiciliary, refers to a UK resident individual who has their permanent home (or domicile) outside the UK. This means that, if certain conditions are met, they may not have to pay UK tax on their foreign income and gains during their period of UK residence.
In this video, Ben Rosen, a Private Wealth and Tax partner at Quastels LLP, takes to the streets of Central London. He delves into the public’s perspective on the non-dom regime. With engaging interviews and insightful conversations, this video sheds light on the opinions, concerns, and understanding of the general population regarding the non-dom tax regime.
Through engaging interviews and insightful conversations, Ben uncovers a range of perspectives and concerns surrounding the non-dom regime. Some interviewees express frustration with what they perceive as a system that benefits only the wealthy, whilst others highlight the potential benefits of attracting foreign investment and talent to the UK.
Ben’s video offers a thought-provoking look at a complex, often controversial and, at times, misunderstood, tax system.
This is the fourth instalment of Quastels’ original series ‘Lawyers On The Beat‘. At Quastels, we strongly believe that having an understanding of the legal framework helps us better understand the society in which we live. If you’re interested in learning more about the non-dom regime and other fascinating legal content, be sure to subscribe to our YouTube channel.