Inheritance tax (“IHT”) payments have hit yet more record highs, according to data recently released by HM Revenue & Customs (HMRC). HMRC collected £5.4 billion in Inheritance tax (IHT) in the year to March 2019. This represents a £160 million increase from the same period a year ago.
While only a small minority of estates are liable for IHT, this number is rising. Whereas only 2.7% of estates in 2009/10 attracted IHT, this rose to 4.2% of estates in 2015/16 (the most recent year for which such detailed statistics have been published).
One explanation for this is that the Nil Rate Band for Inheritance Tax has remained static at £325,000 since April 2009. Estates which would have been under this threshold 10 years ago are now being pushed over the tax-free amount due to inflation, particularly increasing house prices in some areas of the country.
One measure which has already started to take effect is the Residential Nil Rate Band (RNRB). This additional tax-free amount on primary residences is expected to reduce IHT receipts. The measure provides a maximum of an additional £350,000 of IHT-free allowance per couple to offset the tax that would have been paid on their home after death. However, this measure will not be fully phased in until April 2020, and is not as straightforward as it seems, meaning that many may not receive the benefits of this as they expected.
The record high in revenue from IHT and limitations of tax reliefs available has led to a House of Lords committee to discuss how the tax system could be reformed. The committee has proposed that IHT should be scrapped, with a capital receipts tax introduced in its place, where gifts and inheritances are taxed as income received by the inheritor. Another suggestion was exempting some assets from IHT if they were given for the purchase of a first home by a family member.
It seems unlikely that an overhaul of IHT in its current form will be coming anytime soon. For the time being, therefore, there are steps that can be taken which will limit individual IHT liability:
With an ever-increasing amount of IHT being collected each year, it is a sensible approach to take advice now to limit your tax liability in the future and maximize the funds passing to your beneficiaries.
Our specialist advisors are experts in estate planning. If you are interested in discussing ways in which your liability can be reduced, please get in touch with Murray Beith Murray today using the enquiry form or call us on 0131 225 1200.
We are one of Scotland’s leading private client law firms. For over 170 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies. Our approach to client service is friendly and responsive, and we operate with the highest standards of integrity and professional expertise.