Question: Can I get Inheritance Tax Relief?
Answer: Yes – Education & Planning is the answer
HM Revenue & Customs (HMRC) recently revealed that they had collected £5.5bn in Inheritance Tax (IHT) between April 2021 and February 2022.
This shows that IHT has continued to “prove its worth to HMRC”, as quoted by Andrew Tully, technical director at Canada Life.
The latest figure is £700m higher than the same period a year earlier, which Shaun Moore, tax and financial planning expert at Quilter, attributes to eyewatering house prices.
He said: “These ever-increasing figures demonstrate that the government are gradually increasing tax revenues without significantly increasing the burden on taxpayers. However, IHT was once viewed as a tax on wealthier individuals, but due to runaway house prices more people are getting caught by the tax and many people who would not consider themselves wealthy will now face a hefty IHT bill.
“This is well reflected in the fact that London and the Southeast have the most amount of estates paying IHT, which is due to the above average house prices in the region. While house prices may soon cool due to the never-ending list of financial concerns facing the UK such as inflation, energy prices and an unpredictable European war, this is unlikely to take the sting out of IHT bills for some time.
“The government are stuck between a rock and a hard place at the moment as they continue to have to cope with the significant debt it took on to cope with the pandemic but also now has the unenviable job of needing to help alleviate a cost-of-living crisis. Clawing back Inheritance tax might seem like a good opportunity to refill the public coffers at this difficult time.”
Plan and seek advice
These ever-rising figures should be a wake-up call for families to think carefully about tax planning as clearly IHT is the gift that keeps on giving. However, even without any changes to the way IHT is taxed, many people can still expect to see increased IHT bills given both the Nil Rate Band and Residence Nil Rate Band have been frozen until at least April 2026. This is bringing more estates into scope, not least because of rising property values. In the right areas, houses purchased in 1996 for £170k would now be worth over £1 million!
Over the next 20 years, the Baby Boomer generation will be passing over £16 Trillion in assets through inheritance, this is the biggest transition of assets from one generation to the next in the history of the UK. We strongly advise families to take professional advice and use their current tax allowances before any possible changes are introduced.
By planning and considering investing tax-efficiently or making gifts to family members – which may become increasingly welcome given the increase in the cost of living – there are a number of areas where an IHT bill could be reduced or eliminated:
- Undrawn pension pots that can be passed free from inheritance tax
- Equity release schemes that can help on gifting and reducing IHT liability.
- Whole of life insurance policies written into trust allow families to cover large IHT bills without gifting in their lifetime also being subject to 7-year rule while being able to retain control over all assets.
- Investments or ISA’s that qualify for Business Relief (BPR-qualifying companies) can be passed via your Will free of IHT if held for more than two years – unlike gifts, the investor retains control over the investment and can sell the investment and get the proceeds back if they need to.
- Regular gifts out of disposable income (not subject to gifting rules and no limits)
We also encourage clients to look at the generational issues with Inheritance Tax, this is where the same inherited monies can be taxed again when its passed down through the family bloodline. The use of Family Trusts can help mitigate generational Inheritance Tax as the inheritance is repeatedly passed through the generations via family trusts without increasing a child’s/grandchild’s estate for IHT. In this way, protection can be given to your family’s inheritance for up to 125 years, the maximum lifetime of a trust under English law.
Through our Financial Partners we are happy to offer a free guide to ‘Untangling IHT’ that will explain in detail all options available when planning for IHT. You can download this guide through our website, or you may request the guide by post, just contact the office for more information.