The Financial Times recently reported that the annual amount of inheritance tax (IHT) collected by HMRC has risen above £5 billion for the first time. This surprising news shows how important it is for people to take professional advice when drawing up their estate plans to ensure they reduce their IHT liability as much as possible.
IHT is payable on estates valued over a threshold of £325,000 for single people and £650,000 for married couples. It is charged at a rate of 40% on any portion of an estate exceeding these thresholds.
Changes introduced by the Government in April this year mean that people can pass on an additional £100,000 to a direct descendent to offset the value of the family home, taking the allowance for single people to £425,000 and £850,000 for couples. This additional allowance will increase in stages to £175,000 by 2020, giving married couples an IHT threshold of £1 million.
IHT was traditionally seen as only affecting the wealthy, but the sharp rise in house prices over recent years has meant that more and more estates are falling over the IHT thresholds.
Unfortunately, many people are caught unawares by this and recent research revealed an alarming lack of understanding of IHT in general. A study by Prudential found that 67% of parents surveyed did not know what the national average inheritance tax bill is, and only 4% correctly guessed that the average bill was within the range of £100,000 and £200,000.
In addition, the study found that although 35% of those questioned were concerned about having to pay IHT on their estate, only 19% have so far taken action to reduce their potential tax bill.
It is possible to reduce your IHT liability through careful planning, for example through lifetime giving, setting up trusts or leaving a bequest to charity, but the system is complex and professional advice is always recommended.
At Murray Beith Murray, we are more than just tax practitioners - we are trusted advisors who can advise on all aspects of personal taxation, including inheritance tax. Contact us to speak with one of our specialist solicitors today.