Inheritance tax receipts surge, but tax is largely ‘optional’

Inheritance tax receipts surged to £5.7bn between April and December 2023, a £0.4bn increase on the same period last year.

The increasing value of properties and stagnant thresholds means more people are being dragged into paying IHT, and HMRC is likely to have another record year for IHT receipts surpassing 2022/23’s record of £7.1bn.

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“Inheritance tax may only be paid by 4% of estates but this hasn’t stopped our IHT bill surging to an estimated £5.7bn for the year so far. It looks increasingly likely that we will see another record-breaking year with IHT set to top last year’s £7.1bn by tax year end,” said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

“Reported government plans to axe inheritance tax at the last Autumn Statement were widely criticised, but with a mixture of frozen thresholds and historic house price growth pulling more people into the net, we may well see plans to reform this tax made a feature of March’s Budget.

“Increasing thresholds and gifting allowances that haven’t been touched for years could help some families from falling into the net and would likely prove more popular than a decision to scrap it completely.”

Although allowances and thresholds haven’t been amended for many years, experts call IHT an ‘optional tax’ because there are a plethora of ways to minimise paying the tax and manage your estate’s tax efficiently. Indeed, there are also many assumptions about thresholds and allowances that are often wrong and should be researched as part of IHT planning.

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“There’s also a common misconception that you will have to pay Inheritance Tax on your family home if it’s worth more than £325,000. That’s not the case. Effectively, you have the right to transfer that property to your partner or your children with no Inheritance Tax to pay,” said Jonathan Halberda, Specialist Financial Adviser at Wesleyan Financial Services.

“It’s undoubtedly complex, but the reality is that this is largely an optional tax. By seeking professional support and acting early, you can put plans in place to minimise your risk. That might typically include putting savings into a trust, making gifts and taking out relevant life insurance policies that can counteract your liability. It’s never too early to start considering how you want your estate to be distributed.”

In addition to the measure mentioned by Jonathan Halberda, there are generous tax benefits including IHT exemption for investment schemes such as EIS and SEIS.

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