The latest Inheritance Tax (IHT) statistics show an
additional 4% was added to HM Revenue & Customs receipts compared to the
previous year. IHT is a tax payable when you die. Whether your beneficiaries
have to pay it, and how much they’ll pay, is based on the value of your estate.
Your estate’s value is the value of the whole entirety of
your assets. An asset is anything of value that is owned, for example; money,
property, investments, businesses, possessions, payouts from life assurance not
written under an appropriate trust, as well as any gifts made within seven
years of your death. IHT is currently applied to estates worth more than
£325,000, and will remain at this level until April 2026.
When the value of your estate exceeds this limit, known as the ‘nil-rate band’,
everything over the threshold is taxed at 40% (unless you’re leaving it to your
surviving spouse, in which case no IHT needs to be paid).
For the 2021/2022 tax year, there is also a ‘residence
nil-rate band’ currently worth £175,000. If applicable to your particular
situation, this is added to your nil-rate band of £325,000 - so your estate
could be worth up to £500,000 before any IHT is payable.
This increased tax take suggests that the Chancellor’s freeze on the nil-rate
band and residence nil-rate band at the last Budget is beginning to have the
desired effect. It is achieving the ‘fiscal drag’ it set out to do,
particularly given asset prices have soared following the depths of the
pandemic and could continue to do so given inflation is on the up.
As a result, many more people could end up having to pay IHT
without realising they would fall into the tax charge. It is vitally important
people start to have conversations with loved ones to fully understand an
estate and the value of it. While it isn’t always the most pleasant
conversation, it is better to have it now than during more emotional times such
as following a death.
With the government looking for ways to plug the holes in the public finances
created by the pandemic, IHT will always be in focus. IHT is a complicated tax and
one that requires a necessary level of knowledge to ensure your planning in the
most tax-efficient way.
So IHT planning should be a considered but it’s important
not to plan in isolation – it should be part of an overall strategy that
encompasses your lifetime financial goals and assets, even though constituent
parts may be executed separately and at different times.
 National Statistics Inheritance Tax statistics: commentary from HM Revenue
updated 29 July 2021.
INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF
TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS
FROM, TAXATION ARE SUBJECT TO CHANGE. THE VALUE OF INVESTMENTS AND INCOME FROM
THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.
PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE
PERFORMANCE. THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION &