Inheritance tax (“IHT”) payments have increased in yield by a third, according to data recently released by HM Revenue & Customs (HMRC). HMRC collected £1.5 billion in Inheritance tax (IHT) in the tax year to June 2021. This represents a £400 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 3.7% of estates in 2018/19 (the most recent year for which such detailed statistics have been published).
One explanation for this is that the Nil Rate Band (£325,000) and Residence Nil Rate Band (£175,000) for Inheritance Tax have been frozen until at least April 2026. Estates which may once have been under the IHT threshold are now being pushed over the tax-free amount due to inflation, particularly increasing house prices in some areas of the country and share prices.
There has been great speculation around the introduction of a Wealth Tax in the UK. The current Chancellor, Rishi Sunak, has reportedly stated his opposition for such taxes, however opposition parties may not have the same objections to their introduction.
The Wealth Tax Commission published a report in December 2020 on the possibility of such an introduction. This report highlighted that their use has rapidly declined since they gained traction internationally in the 1970s and 1980s, although there have been some examples of one-off taxes being imposed such as that in Ireland between 2011 and 2015 when a 0.6% levy on private pension funds was put in place.
Worryingly, the report strongly endorsed the use of such a one-off tax, recommending that should this form of tax be brought into force in the UK, it ought to be enacted both without prior warning or retroactively. The report projected that should a flat rate of 5% be imposed on assets over £500,000, the yield could be at least £260 billion.
With a Treasury looking to recoup from the cost of the pandemic, it is possible that Inheritance Tax reform or the introduction of a Wealth Tax might be seen. For the time being, 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 maximise the funds passing to your beneficiaries.
Murray Beith Murray Partner, Andrew Paterson, is a specialist in estate planning and asset protection. If you are interested in discussing ways in which your liability can be reduced, please get in touch using the enquiry form or call us on 0131 225 1200.
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