A week before the referendum vote in June, then-chancellor George Osborne claimed he would have to raise taxes and cut spending in a special budget to plug a £30 billion hole in the exchequer if the public voted to leave the European Union. Among the taxes he said he would have to increase, the then-chancellor estimated a 5% rise in inheritance tax.
His comments, though seen by many as an attempt to sway undecided voters, certainly suggested grave ramifications in the once-unlikely event that the country voted to leave the European Union. Once Brexit was voted in, the panicked and, occasionally, apocalyptic predictions began about what this divorce would mean for a whole host of national issues, including taxes.
It’s worth noting that George Osborne’s claim of a 5% tax hike seems unlikely to have been instated. Paul Johnson, director of the IFS, told Huffington Post that Osborne’s Brexit budget “was clearly not going to happen and clearly helped undermine some of what was being said.” In fact, others say Brexit might bring about a reduction in the amount we pay in inheritance tax.
Despite Osborne’s remarks, his replacement Philip Hammond has announced that no such budget will be implemented, so for the time being, the stance of inheritance tax remains the same as it was prior to Brexit. However, although no changes will be imminent, the decision to leave the EU could affect inheritance in other ways.
Despite these differing opinions, the only thing that seems certain when it comes to Brexit is uncertainty itself, and its effect on inheritance tax is no different. However, there are one or two things we can clear up right now.
A potential fall in property prices may have a knock-on effect
A precarious economy will impact the value of property and other assets, which includes what you receive in inheritance. What can be done about this? Firstly you should seek professional help when drafting a will, or evaluating probate.
Probate is the valuation of someone’s estate. It involves finding out about all their assets and debts, valuing their estate and passing it on. As house prices have risen consistently over the last few years, the need for probate valuation in the face of a precarious economical situation is particularly high.
Clearance Solutions, London-based experts in probate valuation, have noticed an increase in custom as a result of this increase in house prices, noting that “many estates now fall over the inheritance tax threshold – even if the value of the contents is relatively modest.”
If Brexit does end up causing a fall in property prices, now may be a good time to consider estate planning. But what happens if your property is worth substantially less than the inheritance tax you paid on it? With regard to property value, HMRC guidance states that “if land or buildings are sold within 4 years from the date of death for less than the value on which inheritance tax was paid, you may be able to claim relief for loss on sale of land”.
It’s been mentioned over and over but the fall in the value of the pound has great implications on the value of property and the number of people buying and selling. The Treasury had forecast that Brexit would prompt a fall in house prices of up to 18% whilst it has been predicted that the average UK house will be worth £2,300 less in 2018 as a direct result of Brexit.
Due to the uncertainty that remains following our decision to leave the EU, this fall is likely to continue, meaning that it is a risky time to enter the housing market, either as a buyer or seller.
Wills for property in the EU are still valid
The good news is that the inheritance law position for British residents with assets in the EU will remain valid after Brexit. However there are factors to consider: Thought will need to be given to the ability of UK citizens to own property in the EU and how that property is used, whether as a holiday home or a permanent home.
One of the major concerns of people who own assets in the EU is whether their wills remain valid once we have left the EU. This is one of the few areas where there is a clear answer: yes.
According to Sophie Hearle at Ashtons Legal, there is no immediate need to panic. She states that “you can rest assured therefore that if your Will was validly drafted and executed pre-Brexit it will remain valid post-Brexit, so long as your circumstances have not changed since the drafting of the Will.”
Could inheritance tax be scrapped altogether in Brexit Britain?
According to a study by Institute of Economic Affairs, “The economic evidence is clear – spending is far too high and the tax system is far too complicated.” They suggest that for the UK to thrive post-Brexit, a number of taxes, including inheritance tax, needs to be completely abolished.
However, as the government continues to wrangle its lengthy negotiations with the EU, a change to inheritance tax seems unlikely to happen anytime soon.