The Resolution Foundation, an independent British think tank, has released a wealth report which shows that Scotland's total household wealth has passed the £1 trillion barrier for the first time.

Speaking to John Beattie on BBC Scotland, Chris Sheldon, Partner in our Tax and Succession team, discussed inheritance tax, including the £325,000 threshold and other rates which apply for different circumstances.

John Beattie

Now, if current trends continue it will become much harder in modern Scotland to earn your way to being truly wealthy and young people's prospects will depend less on their ability and more on whether or not they inherit assets from relatives. That's one of the stand-out lines form a report released by the Resolution Foundation today, which says that Scots' combined wealth now stands at £1 trillion pounds, that is a thousand thousand million pounds, that's a million million or a thousand billion - anyway, mind-boggling numbers, really. It says the typical Scottish household has £237,000 in wealth assets, of that £70,000 in pensions, £65,000 on average in property. We'll flip-flop these. It's a big report, here's some of the stand-outs. Scottish wealth has grown from being five times GDP to more than seven times in the last decade.

Anne Marie Watson

Recent wealth booms have largely benefited older generations with no cohort born since 1965 seeing higher wealth than their predecessors at the same age.

John Beattie

That's made it much harder to close wealth gaps by earning and saving, it would now take a very high income family and to be in the top 10% of households that's a £58,000 a year income, 19 years of saving every single penny they earn to become truly wealthy.

Anne Marie Watson

And what you inherit rather than what you earn is set to become much more important, a more important determinant of your lifetime living standards in the years ahead.

John Beattie

We are going to talk about this in a second, but I asked Chris Sheldon, a partner at tax specialist Turcan Connell, about inheritance tax.

Chris Sheldon, Turcan Connell

Inheritance tax is intended to tax transfers on death or shortly before death. There's a minimum threshold below which tax isn't applied and that threshold is £325,000, and we have had that threshold for many years, since April 2009. Above that level the tax applies at a headline rate of 40%. There are other rates which apply for different circumstances, there's a lifetime rate of 20% for transfers into trusts and there's a reduction to 36% when people want to transfer 10% of their estate to charity, but the headline rate is 40%.

John Beattie

Basically, then, you need to have an estate with assets less liabilities worth more than £320,000 and for every pound above that that you are leaving to, let's say, your children, they will pay 40% of that in tax when you die - am I right?

Chris Sheldon

The amount is £325,000. Now, it's a pretty complicated tax, which is perhaps why the Chancellor asked for a review by the Office of Tax Simplification this year to look into it. It's complicated because there are transfers which are free of inheritance tax. Since 2007 we've been able to transfer that £325,000 nil rate band between spouses, so actually when you are passing down to children it's £650,000 which is the threshold.

John Beattie

Help me understand that - let's say I die and I'm worth £640,000...okay, I die and I'm worth £640,000 and I leave that all to my wife, what happens?

Chris Sheldon

No tax is paid, inheritance tax between spouses, either during lifetime on any gifts you make between spouses or civil partners and on death, so at that point nothing happens. It's the point at which other beneficiaries, children or other family members, friends, etcetera, inherit is the point at which inheritance tax starts to bite. 

Now, it's been complicated slightly more in the recent past, last year a new policy was brought in to reduce the burden on inheritance tax for most families by making it easier to pass on the family home to direct descendants, so that added an extra, now £125,000, threshold into the mix - so it starts to add up. However, there are complications in the legislation as to how you get into that policy and those spouses that aren't passing on the family home to direct descendants won’t be able to use that new relief.

John Beattie

Well, that was Chris Sheldon, partner at tax specialists, Turcan Connell.

 

To find out more on the Resident Nil Rate Band, click here.

Scotland’s total household wealth has exceeded the £1 trillion barrier for the first time

Read more at: https://www.scotsman.com/news/politics/wealth-report-shows-scotland-trails-uk-despite-topping-1-trillion-1-4758209
Scotland’s total household wealth has exceeded the £1 trillion barrier for the first time

Read more at: https://www.scotsman.com/news/politics/wealth-report-shows-scotland-trails-uk-despite-topping-1-trillion-1-4758209