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    Tag: IHT

    Goodbye to inheritance tax?

    Posted on by Rebecca Campbell

    It was reported in July that the government was discussing the possibility of abolishing inheritance tax (IHT), and there are now rumours that the 2024 Spring Budget will include a reduction to the 40% IHT rate, before an ultimate future abolishment.

    IHT is currently charged at a rate of 40% on estates worth more than £325,000, with a further £175,000 allowance which can be set against the value of the main residence if the property is inherited by descendants. As both allowances are shared between spouses / civil partners, there is a potential family exemption of £1 million.

    Due to this, only around 4% of estates pay the tax, even though a combination of frozen allowances and higher property values has brought more estates into the IHT net.

    Why is the change needed?

    The common argument is that, given investments are usually paid for out of taxed income, IHT is seen as a double charge to tax, preventing individuals passing on their wealth to any children or grandchildren. This is because:

    • IHT applies to virtually all assets, without the exemptions given for capital gains tax e.g., for a main residence
    • IHT is mainly paid by the wealthy, but the very rich have far more scope for reducing their overall IHT burden by making lifetime gifts, utilising trusts, plus much more. The moderately wealthy, where a main residence accounts for the majority of the wealth, may not be able to afford similar tax planning

    How likely is the abolition of IHT?

    Full abolition of IHT is almost certainly going to be too costly to the government in the current climate – a £7 billion loss of annual tax revenue – at a time when HMRC are on course to have a record-breaking year from IHT receipts.

    However, a rate reduction of a percentage point or two cannot be ruled out, but whether this will be in the upcoming Spring Budget as reported remains to be seen.

    The forthcoming general election also raises questions on the reported IHT reductions, as a Labour government would likely move in the opposite direction and cut IHT allowances, namely the £175,000 main residence allowance.

    Get in touch

    As we await further confirmation on the future of inheritance tax, if you are concerned your estate may become liable for the tax, there are measures you can take. Get in touch with a member of the PM+M tax team to discuss the tax planning opportunities available to ensure you are paying the right amount of tax, and no more. Email enquiries@pmm.co.uk, and a member of the team will get back to you for a confidential chat.

    Inheritance Tax receipts rise

    Posted on by Laura Boyd

    HMRC has announced record receipts from inheritance tax (IHT) during the period April 2021 to March 2022 – a total of £6.1 billion, nearly a 13% increase on the same period a year earlier.

    Receipts are likely to continue to rise for the foreseeable future due to the freeze on IHT thresholds until 2026, rising inflation, and continuing increases in property prices bringing an increasing number of estates above the threshold.

    The Office for Budget Responsibility estimates that IHT receipts will increase by a further 36% to £8.3bn by 2026/27 and more individuals will be caught by IHT in the coming years.

    What can be done?

    The most important step that individuals can take is to review their assets, consider what lifetime planning is appropriate, review the structure of their wills, and take appropriate advice on with tailored planning to their own circumstances. The UK IHT system offers a few ways that may prevent individuals from suffering large IHT liabilities on death, some of the key options and reliefs include the following:

    • Transferable nil rate band – where a married couple leave everything to each other in their wills it is now, not only exempt from IHT but it means they have not used their own nil rate band and it can be transferred to their surviving spouse or civil partner., it may be possible to claim a total nil rate band allowance of up to £650,000.
    • Residence nil rate band – this acts as a top-up to the current IHT NRB (2021/22 – £325,000) and works in a similar manner by reducing the value of your estate that is subject to IHT at the full rate of 40%, and at the current rate gives each person an extra IHT free allowance of £175,000, provided that certain conditions regarding how their main residence is inherited are met. In particular, this only applies in full if your estate is under £2m on death. This allowance can also be ‘inherited’ between spouses, giving a maximum of £350,000 per couple
    • Downsizing allowance – this allows the residence nil rate band allowance to be claimed in certain circumstances where the person who has died downsized (reducing the value of their property) or moved into a care home before their death.
    • Business property relief – ownership of part of a trading business, or shares in certain unlisted companies, may qualify for 100% relief from IHT, but they must have been owned for at least two years before death.
    • Gifting assets – making a gift to your family and friends while you’re alive can be a good way to reduce the value of your estate for IHT purposes and benefit your loved ones immediately, for capital gifts you must survive for at least 7 years after gifting to avoid the IHT.
    • Gifting income – making regular gifts from your surplus income takes those funds immediately out of IHT and can be a valuable way of stopping your estate increasing in value.

    Even after death, it can be possible to mitigate IHT by entering into a Deed of Variation (within two years of death), a legal tool which can be used by any adult beneficiary, regardless of whether an inheritance is left in a will or through intestacy, family members should be aware of this and take early advice during the estate administration process.

    What next?

    Careful advanced planning and structuring of your estate can not only help to reduce your tax liabilities, but ensure that you and your family’s financial future is safeguarded. To discuss your estate planning needs in more detail please contact PM+M Managing Partner Jane Parry using the button below.