IHT receipts jump to £6.1bn

HMRC collected a record £6.1bn in inheritance tax in 2021-22 – a jump of 14% on the £5.4bn collected in the previous year. It is the largest single-year rise since the 2015-16 financial year, when receipts rose by 22% (£848m).

It means the average inheritance tax (IHT) bill has increased by £7,000 per estate to £216,000. The total number of UK deaths that resulted in an IHT charge has also increased. HMRC data shows there were 23,000 such deaths in the tax year 2019 to 2020. That’s an increase of 4% on the previous year.

Everyone is entitled to a tax-free IHT allowance. But if the value of your estate exceeds it, it may be subject to IHT at a flat-rate of 40%. The increase to IHT bills is a result of these tax-free allowances. The nil-rate band (the total value of your estate that can be inherited tax-free) has been at £325,000 since 2010-11.

The newer residence nil-rate band – the extra allowance given on a main home – was first introduced at £100,000 in 2017 and increased incrementally each year until it reached £175,000 in 2020-21. Both allowances are due to remain frozen until 2026, at which point IHT figures are predicted to have risen to £8.3bn, according to the Office for Budget Responsibility (OBR). This is coupled with rising property prices, which means an increasing number of people who were previously unaffected by IHT may soon find their estates exceed their allowances.

If your estate comes under the scope of IHT, there are several steps you can take while you’re alive to minimise how much will be paid to HMRC.

• Make use of tax-free allowances: Everyone in the 2022-23 tax year has a tax-free inheritance tax allowance of £325,000 – known as the nil-rate band. In addition, since April 2017, you’ve been able to pay less inheritance tax when leaving property to a family member. For the 2022-23 tax year, this transferable allowance is £175,000. Combined with the nil-rate band, that’s a potential tax-free allowance of up to £500,000 per person
• Make gifts: Giving your money away as a gift during your lifetime is a simple step people take to reducing inheritance tax. No tax is due on any gifts you give, as long as you live for seven years after giving them
• Other options: You can also reduce inheritance tax by putting your life insurance policy under trust, drawing up a deed of variation that allows your heirs to alter your will after death, or using an equity release scheme to make use of money tied up in property

If you would like to review any aspect of your current portfolio and estate planning strategies, please contact your financial planner.

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Source: Techlink.