IHT – Under The Spotlight
According to figures from HM Revenue and Customs, Inheritance Tax (IHT) revenues are up again, with £5bh being paid in the 2017 – 18 tax year. This increase comes despite the introduction of the residence nil-rate band in 2017.
With more families falling into the IHT bracket, campaigners are hoping that current review by the Office of Tax Simplification, will pave the way for IHT purposes after that time, is integral to tax planning.
The low amount of £5,000 that can be given away to children upon marriage should be a prime candidate for overhaul; so too should the annual tax-exempt gift allowance of just £3,000.
many believe that a positive step would be to remove the overly-complicated residence nil-rate band.
In the meantime, whilst we’re awaiting the outcome of the review:
What assets can be passed on free of IHT?
Everyone has a nil-rate band enabling them to pass £325,000 of assets tax-free. Most gifts made more than seven years prior to death are also free of IHT, as are gifts made between married couples and civil partners. Additionally, the residence nil-rate band rises annually, reaching £175,000 in 2020-21 tax year.
There’s a £3,000 gifting allowance each tax year (if used, this can be carried over for one year). Wedding and civil partnership gifts are exempt, up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else. Gifts of up to £250 per tax year are exempt, provided the recipient hasn’t received part of the £3,000 allowance.
Regular gifts from income can be exempt in certain circumstances. There is normally no IHT payable on gifts to charities or larger political parties. Pensions are not usually counted as part of an estate for IHT purposes, though other taxes may apply in some circumstances.
Inheritance Tax is complex; professional advice is always recommended.
The Financial Conduct Authority does not regulate some forms of taxation advice.
It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change the future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Taxation depends on individual circumstances as well as tax law and HMRC practice which can change.
The information contained within this newsletter is for information only purposes and does not constitute financial advice. The purpose of this newsletter is to provide technical and general guidance and should not be interpreted as a personal recommendation or advice.