Inheritance Tax: The Government Rakes In 35BN
The amount of revenue that the government raises from inheritance tax (IHT) continues to rise year by year. In 201617, the figure rose again to over £4.9bn1, with experts expecting it to be even higher in this financial year.
Controversially, the threshold at which IHT applies has been stuck at £325,000 since 2009. Over the same time, house prices have mainly continued to rise, meaning that more families than ever have found themselves drawn into the IHT net.
Help has come in the form of the family home allowance that reduces the amount of IHT payable on a main residence being left to defined direct descendants. Referred to as the ‘main residence nil rate band’, it is being introduced in stages over four years, with a limit of £100,000 applying from April 2017, rising each tax year until it reaches £175,000 per person in 2020. This is in addition to the individual allowance for IHT of £325,000.
Why Planning Matters
There are several ways in which you can reduce your potential liability to IHT. Many families consider giving assets away during their lifetime. However, you must outlive the gift by seven years, if not they count as part of your estate, although taper relief applies so that if you die, say, within six years the tax would be less.
Using Your Annual Allowances
Each financial year you can make gifts of up to £3,000 (in total, not per recipient) and if you don’t use this in one tax year, you can carry it over to the next year but not beyond, which means you could give away £6,000.
Gifts of £250 per recipient per tax year to any number of people are exempt. Each parent of a bride or groom can give up to £5,000; grandparents or other relatives can give up to £2,500 and any well-wisher can give £1,000. Gifts to registered charities and political parties are also exempt.
Every family’s circumstances are different, so taking bespoke professional advice is essential in planning your estate.
Not all Inheritance Tax Planning solutions are authorised and regulated by the Financial Conduct Authority.