HMRC has released data showing that inheritance tax (IHT) receipts reached £2.1 billion between April and June 2024. This significant figure has implications for many UK families – what does this rise in IHT receipts mean for you?
Understanding the rise in IHT receipts
Inheritance tax is a levy on the estate (property, money, and possessions) of someone who has died. The standard IHT rate is 40% on anything above the £325,000 threshold (known as the nil-rate band). Several factors contribute to the rise in IHT receipts:
- Increasing property values: the continuous rise in property prices has pushed more estates above the IHT threshold. Even modest family homes in certain parts of the UK can easily surpass the nil-rate band, leading to higher tax liabilities.
- Static thresholds: the IHT threshold has remained frozen since 2009 and will currently remain so till 2028 at the earliest, meaning that more estates fall into the taxable category as inflation and asset values increase.
- Legislative changes: recent changes in tax policies, such as the introduction of the Residence Nil-Rate Band (RNRB), while offering some relief, still leaves many estates liable for substantial IHT, especially for those not meeting the conditions for the additional allowance.
What are the implications for UK families?
The rise in IHT receipts indicates that more families are affected by inheritance tax than ever before – meaning proactive estate planning is more important than ever. Without proper planning, a significant portion of your estate could go to HMRC, rather than your loved ones.
We have highlighted various ways you could potentially reduce your IHT liability:
- Make use of allowances and reliefs: there are various allowances and reliefs available that can reduce your IHT liability. These include the annual gift exemption, which allows you to gift up to £3,000 per year without incurring IHT, and the inheritance tax reliefs for gifts made out of surplus income.
- Consider lifetime gifts: gifts made during your lifetime not falling within the annual exemption limit can set the required 7 year clock running. Additionally, gifts to charities are usually exempt from IHT, which can help reduce the overall taxable value of your estate.
- Utilise trusts: establishing trusts can be a strategic way to pass assets on to beneficiaries while minimising IHT. Trusts can be used to control how and when assets are distributed and can also offer potential tax advantages.
- Review your will regularly: Regularly updating your will ensures that it reflects your current financial situation and estate planning goals. This can help ensure that your assets are distributed according to your wishes whilst taking advantage of available tax reliefs.
- Seek professional advice: Given the complexities of IHT legislation and estate planning, consulting with a tax adviser can provide valuable insights and strategies tailored to your individual circumstances.
Planning for the future
The rise in IHT receipts is a clear signal for to reassess your estate planning strategies. As tax advisers, we are here to help you navigate these complexities and ensure that your assets are passed on to your loved ones with minimal tax liabilities.
Stay informed, plan ahead, and seek professional advice to ensure your legacy is preserved for your loved ones.
If you haven’t reviewed your estate plan recently, now is the time to do so. With proper planning and professional guidance, you can take steps to protect your estate from substantial inheritance tax charges. Contact us today, by emailing enquiries@pmm.co.uk, to discuss how we can help you plan effectively and secure your family’s financial future.
