IHT receipts reach £6 billion record

The amount of inheritance tax (IHT) collected by HMRC over the past year reached a record £6 billion, some £1 billion more than the previous 12 months. This increase comes as no surprise given booming property values and frozen nil rate tax bands. It seems the tax is no longer the preserve of the super-rich.

The IHT nil rate band has not been uprated for 12 years and is set to remain at £325,000 for another four. For a reasonably well-off couple, the loss of indexing means around an additional £200,000 of assets being subject to tax. The residence nil rate band (RNRB) is also fixed, at £175,000, until 2026.

Inheritance tax

The review into IHT had made various recommendations, particularly regarding exemptions and reliefs as these can be quite complicated. Given that the nil rate band and the residence nil rate band are frozen until 2025/26, the government has decided not to proceed with any IHT changes for the time being, although the door has been left open for changes in the future.

Reduced IHT reporting requirements from 1 January 2022 have already been announced, and the latest confirmation of the status quo will be welcomed by anyone who has recently undertaken IHT planning.

Property considerations

Although the nil rate bands total £1 million for a couple, the average value of a detached family homes in the UK have risen consistently, and in some areas there have been spikes for the semi-rural locations, over the last few years and many couples can find themselves in situations where the value of the family home takes up a considerable proportion of the combined nil-rate bands.

Unfortunately, there may be little scope for any IHT planning if the value of your estate comes mainly from your property.

However, it is important to have an up-to-date will, and to make the best use of reliefs and exemptions – especially the RNRB.

You might wish to take out life assurance if you want your heirs to hold on to your home, rather than being forced to sell to fund IHT. The policy should be written in trust and increase in line with property values.

Planning opportunities

Any IHT planning will depend on your age, assets and how much you can afford to gift without impacting your lifestyle. Professional advice is always recommended, but there are some important considerations:

· Pensions: There are various possibilities, but, for example, you could fund pension contributions for your children or grandchildren. The recipient can benefit from tax relief, and your estate is reduced over time without the need for a large capital gift.

· Business property relief: Riskier, and there is no guarantee of future exemption, but you might consider ISAs that are invested in the AIM market. The ISAs will escape IHT after being held for two years.

· Trust planning opportunity still available

There are further ideas in manging your taxes and financial affairs in Tax Matters 2021-2022 and HMRC’s basic guide to how IHT works, including details of various exemptions, can be found on GOV.UK

Our experts will help to structure your financial interests and affairs to minimise any taxes that may be payable from your estate.

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Get in touch with us to arrange appointment to discuss your financial and tax affairs now and for your and their futures.