Recent eye-watering news was that the annual receipts in Britain for inheritance tax hit £5bn for the first time.
According to official statistics, the government collected £5.1bn in inheritance taxes in the 12 months to May, up 9 per cent on the £4.7bn collected a year earlier.
This means IHT receipts account for their highest share of national income since the early 1980s – albeit they are still only worth 0.25% of GDP.
Why is inheritance tax rising?
One obvious cause is the rising value of homes and shares, which helped push up receipts for April and May of this year by 34 per cent, compared with the same period last year. As IHT is collected, in general, a few months after someone dies, these figures reflect the period of growth in house prices before the recent slowdown.
In April, the government introduced its Residence Nil Rate Band, which aims to effectively take the family home out of inheritance tax liability – without RNRB, the £5bn figure would have been even higher. Indeed, the Office for Budget Responsibility, expects inheritance tax receipts to rise to £6.2bn by 2020/21.
Inheritance tax rates
Each person has an allowance of £325,000 – or £650,00 for married couples or those in a civil partnership. The allowance has remained the same since 2010/11 and will stay frozen until at least 2019. Over and above this, inheritance tax is charged at 40%.
If you pass on your home to your children – including adopted, foster or stepchildren – or your grandchildren, your allowance increases to by £100,000 to £425,000, or £850,000 per married/civil partnership couple. This £100,00 is the Residence Nil Rate Band, which will increase by £25,000 per tax year until it reaches £175,000 by 2020/21.
So with this in mind, perhaps now is the time to look at minimising your inheritance tax liability. There are many options available, including creating trusts – where you retain control of the money – or transferring wealth, including gifting away sums, or structuring a will effectively.
For more information about inheritance tax planning, and how to mitigate the impact of IHT on your estate, please get in touch with the team at Hartsfield.