Inheritance Tax Jumps by 20%
The latest figures from HMRC shows a 20% leap, an extra £600m, in Inheritance Tax (IHT) receipts. This is money deducted from the estates of those that have died, before they can pass anything on.
What is Inheritance Tax (IHT)?
IHT is charged on the estate (assets such as property, investments and cash minus liabilities such as mortgages and other debts) of someone who has died. It must be paid before any of the deceased’s chosen beneficiaries can inherit their share and is currently charged at 40% above a basic allowance of £325,000 (Nil Rate Band or NRB).
What is happening with IHT?
As these latest figures indicate, the amount we’re paying to HMRC in IHT is on the rise. There are several reasons for this rise, not least the continued high rate of property price growth pushing more of our estates into the threshold to pay IHT. This will be exacerbated as the IHT threshold has been frozen at £325,000 per person until 2026, meaning more of us will have to pay IHT.
This trend makes it even more important that people are planning and taking expert advice to avoid overpaying. As Andrew Gillett, Head of Wealth Management Advice at BRI Wealth Management stated:
“The important thing is that families don’t sleep walk into paying this tax and take advice in good time to ensure planning is effective.”
What can be done?
As is often the case with tax regimes, the rules are complex and depend on many factors. For example, gifts to spouses or civil partners are exempt from IHT (spousal exemption) as are gifts to charities and some types of assets can also pass without incurring IHT.
Parents can use an additional £175,000 allowance (Residence Nil Rate Band or RNRB) if they are passing their own home to their children or grandchildren and their total estate is worth less than £2m. There are also rules on when you can gift assets during your lifetime that impact IHT in different ways.
With such significant sums at stake, Estate Planning is highly advisable to ensure you do not overpay IHT. Combined with the complexity surrounding IHT and the options available to protect and distribute one’s estate after death, seeking expert advice seems like sage advice.