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Inheritance tax receipts hit all-time high

The percentage of the population becoming liable to pay inheritance tax (IHT) on their death is growing year on year – with the total IHT collected in 2015/16 at an all-time high of almost  £4.7billion.

This is a staggering 22% increase from the previous year and is also the highest ever IHT received since the tax was introduced in March 1986. The importance of IHT to HMRC has been increasing in recent years – with the IHT share of total taxes collected growing by more than 50% since 2009.

One of the main reasons for this increase is due to property prices drastically increasing over the years, but fiscal drag plays a part with the tax free amount (or the nil rate band) being static since April 2009. This rate is not planned to be reviewed until at least April 2019, therefore the percentage of those becoming liable to pay IHT could continue to increase until then.

There will be a new additional ‘Residential Nil Rate Band’ gradually being introduced over the next few years. By 2020 each individual will receive an additional £175,000 of the nil rate band, provided their home is passed on death, to a direct descendent. However, it is suggested that this will create a ‘two-tier’ IHT system – as those who don’t own their own home or don’t have children will not benefit from this extra £175,000 nil rate band.

There are many ways in which your potential IHT liability can be reduced or even eliminated by effective tax planning – and various IHT exemptions than can be utilised with proper planning and the right advice.

One method of effective tax planning – which many people are beginning to take advantage of – is to create a trust or family investment company which offers asset protection, therefore reduce personal taxes. If you intend to leave money to charity then a reduced IHT rate of 36% applies instead of the 40%, however this must be structured correctly so as to benefit from the lower rate. This method of planning saved tax payers £28million during 2013/14.

Properties, cash and securities make up the majority of the assets on which IHT is paid, therefore it is important to plan for your death to make sure your assets are structured in the best way so they pass to the correct beneficiaries and you do not pay IHT unnecessarily. Sometimes this is easier said than done, particularly with elderly relatives being asset rich but cash poor, in which case it may be  difficult to pass assets which are either lived in, or investments from which the income is relied upon.

Without comprehensive IHT planning, the complexities that arise after death can have a significant effect on the beneficiaries of the estate and will reduce the amount of your assets that you are able to bequeath. So why pay 40% tax when it’s not necessary? Whilst it is often a difficult subject to approach, it’s important to make sure that you put the proper planning into effect at the earliest stage possible and that you advisor is made aware of all of your assets, to enable them to structure them in the most tax efficient way to benefit you and your family.

To discuss protecting your estate, contact Lisa Wilson, Tax Partner at Cowgill Holloway Chartered Accountants in Bolton, Manchester and Liverpool.


The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
31st August, 2016
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