Last year, the UK Government collected a record £5.2bn in inheritance tax (IHT). The country’s rapid increase in housing prices caused more households to pay its “most-hated tax.”
Data from HMRC revealed that in 2017, IHT receipts increased by 8% (£388m), surpassing the £5bn mark for the first time.
A 24% jump in house prices from 2011 to 2016 was responsible for most of the increase. It should continue even though new rules introduced in April 2017 will exempt estates with family homes worth up to £1m from IHT by 2020.
Since 2009/10, IHT receipts have grown at an average rate of 10% annually. However, the nil-rate band, which is the amount that an individual can bequeath to someone without incurring the IHT, has remained unchanged at £325,000.
The most recent Government data for 2015/16 indicates that 4.2% of deaths resulted in an IHT liability, but current figures have increased to an estimated 5%.
The latest HMRC data does not reflect the full impact of the new rules, which allow an additional £100,000 exemption from IHT this year. The exemption will increase by an additional £175,000, with the total exemption reaching £1m for couples by April 2020. This allowance is up for review in Autumn by the Office for tax simplification and may be removed.
How can I reduce my IHT Liability?
As we point out in our guide called A Clear Approach to Tax Efficient Investing, there are steps that you can take to reduce your IHT bill.
You can use Business Relief (BR) to reduce the value of assets subject to IHT. You can invest in qualifying assets that will reduce the IHT liability if you have held those assets for two years on death.
There are five types of assets that qualify for BR. Three of these qualify for receiving 100% BR: a business, certain types of unquoted securities and unquoted shares, including those listed on the Alternative Investment Market (AIM). Two others qualify for receiving 50% BR: certain types of quoted shares or securities and certain types of buildings, land, plant and machinery owned by a transferor.
A proactive investment strategy can help ease the pain of IHT.
To find out more about the service that we offer for Business Relief please contact us.