The British government eases the inheritance tax regime
Real estate wealth in the UK tends to concentrate generationally. The difficulties of young people’s access to this market influence their taxation.
In the UK young people will inherit more but in more unequal conditions in the future. This is clear from a report presented by the Institute for Fiscal Studies (IFS). In ten years the wealth of older generations will grow around 45%.
This means that there will be more wealth that will be passed on into the hands of the younger generations, however, most only benefit the better-off and those with high incomes. Among the causes are the increase in the number of people who purchase a home and the prices of real estate.
Thus, according to this document, only the richest 50% of the oldest owners own 90% of this wealth. The situation is aggravated by the growing difficulty that young people have to access a first home, and therefore, the real estate market.
At present, more than half of the families that have sufficient assets to inherit at least 250,000 pounds are in the richest 20% of the population. As a consequence, inherited wealth will become increasingly important for the next generations because it will become increasingly difficult to accumulate wealth due to the sharp fall in the number of homeowners and household income.
In this way the inheritance tax regime will soften because both the amount now paid in the UK for this tax as the number of people facing it will decrease over time.
The government has already begun to implement measures to alleviate this tax problem with measures such as aid to young people to access a home, raise municipal taxes and the number of buildings under construction as well as lower stamp duty taxes.
In fact, beginning in April 2017, it will implement the Transferable Main Residence Allowance (TMRA) to allow more families to inherit their tax-free wealth to their direct descendants, through a tranche system. This allowance will not apply to the habitual residence which will be exempt if it has a value equal to or less than 325,000 pounds.
In the 2017-2018 fiscal year the IHT’s maximum payable tranche is £ 100,000 which will grow steadily year on year to £ 175,000 by 2021. From this date the rate will rise in line with the rise in the Consumer Prices Index -CPI). It is estimated that this measure will enable families to transfer up to one million pounds of their wealth to the next generations by 2021.
In the case of the British with property in Spain, the Spanish law in article 9.8 of the Civil Code establishes that the law of the country of which the deceased has the nationality will be applied to inheritances. By law of the United Kingdom, in this sense, real estate located in the country are subject to national law but to those located in Spain, Spanish law applies. The amount of this tax paid by the British varies, moreover, with each Autonomous Community.
This initiative will take effect for those transmissions after death that are made as of April 6, 2017, not for live transmissions, which are technically donations. The tax-free IHT band will also be transmitted to the second wife or civilian relative of a deceased as of April 6, regardless of when the first of the couple dies.
Government measures to limit the concentration of wealth allow it to flow and boost the economy.
At Del Canto Chambers we are specialized in international tax and commercial law specifically in tax management with the tax authorities in the countries where we operate. You can contact us at clerk@delcantochambers.com
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