Recent figures from HM Revenue & Customs (HMRC) have revealed a jump in inheritance tax (IHT) receipts during 2022. Receipts for the financial year up to January total £5.9 billion – £900 million higher than the £5 billion seen in the same period the previous year – representing an increase of 18%.
With continued freezes on tax allowances and thresholds, against a backdrop of continuing high house prices, inheritance tax is set to remain extremely lucrative for the government over the foreseeable years to come. Jill Waddington explores the topic and explains how with the right planning, you can make the most of your wealth and pass it on to your loved ones in the most tax-efficient way.
At 40%, Inheritance Tax is one of the most burdensome taxes in the UK. Due to rising house prices in recent years, many more people may find themselves falling into the IHT bracket than ever before.
Current IHT rules mean that individuals are able to pass on £325,000 free of tax – known as the nil rate band (NRB). Further to this, property owners can leave up to an additional £175,000 from the value of their main residence – known as the residence nil rate band (RNRB) – to ‘direct descendent’ family members. Married couples or civil partners are able to pass on both their nil rate band allowance and the residence nil rate band to each other upon death, meaning that up to a total of £1 million of a married couple’s assets can be able to be passed on before inheritance tax applies.
Without the right planning, it isn’t too difficult to see how a hefty inheritance tax bill could apply to your estate. The good news is that there are ways to reduce or even eliminate an IHT bill, with careful tax planning.
The first step to taking control of your IHT planning would be to make a carefully considered will. When making a will with a private client solicitor, it would be prudent to conduct a comprehensive review of your financial situation. Further to this review, it may be that certain strategies are employed to help you to structure your affairs in the most tax-efficient way. This may involve making lifetime gifts to make use of the gift allowances Depending on your situation, the use of trusts and other strategies can further help to reduce or eliminate an IHT bill.
IHT planning can be a troublesome topic to approach as individuals can be reluctant to relinquish control over their assets. With the right advice and subsequent actions, it can be possible to find a balance between maintaining control and avoiding leaving large swathes of an estate subject to IHT.
It’s also worth noting that tax planning isn’t just about finding ways to reduce the inheritance tax bill. It’s also about making sure your assets pass efficiently to the intended recipients.
Taking control of your IHT planning involves considering your assets, liabilities and family structure. A private client solicitor can help you to understand the IHT rules and advise on strategies for minimising your IHT bill. By planning ahead and seeking the expert guidance of a private client solicitor, you can give your loved ones the best possible inheritance whilst ensuring your assets are passed on in the most tax-efficient way.
For more information or to make an appointment with our Private Client team to make or review your will, please contact Jill Waddington.