The amount HMRC raises in Inheritance Tax continues to rise
The amount HMRC collects in Inheritance Tax (IHT) has risen considerably in recent years. A recent article in the Telegraph states that twice as much IHT tax is now collected than five years ago. In 2015/16 a total of £4.72 billion was raised from IHT, an increase of 17% from the previous year.
When someone dies, their estate will be liable for IHT. An exemption applies to all assets up to a value of £325,000 and then the value of the estate above this limit will be subject to IHT at a rate of 40%. For married couples and civil partners, if the exemption is not used up when one spouse/civil partner dies, then the remainder of the nil rate band will pass to the surviving spouse/civil partner’s estate. This means a total exemption of £650,000 could be available.
Inheritance tax was originally only intended to apply to the very wealthy. However, an increasingly wider group of people are now being affected by this tax. Properties, stocks and other financial securities make up the bulk of the assets liable for inheritance tax and rising house prices and stock markets are a key factor for the increase. In 2015, 24% of houses sold were over the exemption limit of £325,000. Furthermore, the exemption limit has remained frozen since 2009, showing that this tax remains out of line with other economic developments.
However, IHT has also been called a ‘voluntary tax.’ The recent death of the Duke of Westminster highlighted this point again. If the entire estate had been taxed then this would have yielded considerable IHT. Yet the new Duke of Westminster inherits his fortune largely intact because the estate is held in a trust. Whilst very few people enjoy the wealth of the Duke of Westminster, there are several options available to you that will reduce or mitigate completely the amount of IHT payable.
The first step is to ensure you have a will in place that reflects your intentions and enables you to direct your assets in a tax efficient manner. Certain gifts made during your lifetime may also reduce the amount of IHT payable but there are numerous caveats in place which mean that these gifts may well still be liable for IHT. As with the Duke of Westminster, wealth can also be placed in trust to protect it.
Our team of specialist wills and trust advisers will be able to assist in exploring your options and advise the best way to protect your wealth. Please contact the team to seek further advice.