DON’T LET INHERITANCE TAX BE THE TRUE LEGACY!

Amid these canicular days sun, sea and sand will be at the fore, for many, with holiday plans well underway to far-off sun-drenched locations for that welldeserved summer break away from day-to-day routine. Inheritance Tax (IHT) is least likely to top the agenda. Yet government statistics show more people than ever are being hit by IHT.

In 2022/23 H M Revenue & Customs (HMRC) reported IHT receipts of £7.1billion, up £1 billion from the prior year, an increase of 16%. This upward trend looks set to continue. National Statistics show IHT receipts for April 2023 and May 2023 at £1.2 billion, an increase of £0.1 billion compared to the same period last year. Rising asset values combined with frozen IHT nil rate band thresholds have been stated as factors contributing to the increase in IHT receipts.

For most, IHT can be mitigated, with planning, allowing more of people’s wealth to pass to their loved ones. Currently, IHT is payable at 40% on the value of each person’s estate exceeding £325,000. An additional allowance of £175,000, known as the residence nil rate band, is available towards the value of the home passing to direct descendants. IHT reliefs and exemptions are also available, when certain conditions apply, to reduce the potential IHT exposure. For many using trusts or a family investment company are useful vehicles incorporated into estate planning, where appropriate, allowing individuals to pass on wealth to the next generation whilst retaining control over the assets. Many think trusts are only suitable for the very wealthy when in fact a simple trust can be a useful tool in estate planning regardless of the level of wealth.

UK IHT has often been a topic for debate over the years. In January 2018 the then Chancellor asked the Office of Tax Simplification (OTS) to conduct a review of the IHT regime. In the end the Government decided not to proceed with any major changes. However, IHT has featured again in the press, recently, with calls on the Government to abolish IHT sparking mixed reactions. It will be case of wait and see what happens next.

In the meantime, individuals are encouraged to review their estates and speak to their tax or legal advisor to understand their IHT position, discuss their options and plan accordingly, otherwise the tax man may be the true benefactor.

Moira McKeown Tax Senior Manager