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Murray Beith Murray is a leading Scottish private client law firm.

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.

Call us today on 0131 225 1200
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3 minutes reading time (668 words)

Inheritance tax payments rise 33% from 2020

andrewInheritance 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.

Why is so much inheritance tax being paid?

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.

What changes could be coming?

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.

What can be done now to limit future tax liability?

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:

  1. Annual exemption – legislation provides that you have a £3,000 'gift allowance' each year. This is known as your annual exemption. This means you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for IHT purposes.
  2. Gifting – an effective way of reducing the value of your estate for IHT purposes is to give parts of it away before your death. It is important that gifts are made in sufficient time prior to death and in appropriate amounts in order to be effective.
  3. Trusts – setting up a trust can be an effective method of getting assets 'out of your estate' in order that they do not attract IHT on death while also retaining an extent of control which is not possible with a direct gift to an individual.

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.

Specialist Asset Protection & Estate Planning Lawyers, Edinburgh

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.

Murray Beith Murray was established in 1849, as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day as does our commitment to be here when you need us.

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