UK families who have just lost a loved one seem likely to be penalized if they are late in paying inheritance tax on their estate. It’s a move that is difficult to take on board even for the most cynical and which, at its best, will earn the Treasury a mere £10 million annually. One wonders if Brown and Darling’s public relations people are aware of this forthcoming legislation; if passed, it will do even more damage to their already tarnished reputation – and this with a general election looking increasingly likely for the spring of 2010.

Reports have it that the UK Government is set to levy a 3 per cent annual interest charge on inheritance taxes that are submitted later than a certain time scale after a person passes away and the estate has been dissolved. Additionally, the tax man will be living up to his heartless image by reducing the rate of interest traditionally paid when any overpayment of inheritance tax is returned to the estate.

Government critics were forming a line to condemn what they described as a desperate, heartless move by Brown’s obviously hard-pressed government. Currently the laws pertaining to inheritance tax stipulate that where estates have a value of £325,000 or more, the trustees must submit the inheritance tax within six months of the death, on the taxable residue. If they fail to do so, the estate is charged a minimal interest of 1% annually until the tax was remitted. The Labour government even displayed some unusual compassion by cutting the rate to zero, and as recently as March of this year, showed an understanding that most estates are based around properties which were and still are difficult to dispose of under the prevailing market conditions.

From the coming September, late payments are to be charged at 2.5 percentage points above the Bank of England base, which is now sitting on the historic low rate of 0.5 per cent, with the interest that HM Revenue & Customs due to pay on refunds scheduled to be one point below the Bank‘s rate, although it cannot go below the 0.5 percent level. It seems likely that many executors will find themselves with no option but to pay the interest rather than offload a property at below-market prices, which will be, for many, a bitter pill to swallow.

In the most recent figures available the Treasury announced that it expects to collect around £2.2 billion in inheritance tax for the current tax year, with late payment interest amounting to a mere £10 million.

What next, a nation asks, of Gordon and Alastair?

• How To Reduce A Trillion Dollar Deficit Stanford professor John Taylor had an alarming op-ed piece in...
• How To Figure Out Taxable Income for a Recent Graduate This post is part of a three post series which...
• Downsizing and Mortgage Refinance Strategies For the past year or so we have been openly...

Tags: Alastair Darling, Bank of England, British Economy, Economy, Financial News, Gordon Brown, HM Revenue & Customs, inheritance tax, Interest Rates, Money, Savings, Tax, UK government