Amidst high inflation rates and rising inheritance tax receipts, Niki Patel from St James's Place discusses with WealthBriefing what can be done to mitigate UK IHT liability and capital gains tax.

Two of the most important taxes that a high net worth individual is likely to contend with - inheritance tax and capital gains tax - have been scrutinised by UK wealth management house St James's Place in a recent briefing. In particular, the firm explained how the taxes' impact can be mitigated. 

Despite rising asset values and soaring inflation rates, the threshold for paying inheritance tax of 40 per cent in the UK has been frozen at £325,000 ($364,000) since 2008/2009 until 2025/26.

Prior to that, the threshold was usually increased annually, Niki Patel from St James's Place told WealthBriefing this week.

As fiscal drag brings more estates under the scope of the tax, more people are being caught up in the inheritance tax net, with the average inheritance tax bill reaching a record high of £216,000 in the 2019-20 tax year, from £209,000 the previous year.

Even though a residence nil rate band was introduced in 2017, it is expected to be frozen at £175,000 until 2025-26, whilst average UK property values have risen and inflation has reached record levels, causing more people to become liable for IHT.

This week, Patel discussed with WealthBriefing what can be done to mitigate IHT liability. She spoke to this news service a few days after government taxation was under the spotlight following UK Chancellor of the Exchequer Kwasi Kwarteng's mini-budget, which had focused on income taxes.

IHT
Patel highlighted the benefits of investing in IHT free assets: "Company shares that qualify for Business Relief can be invested in, and these are typically inheritance tax-free after two years. But this can be more risky so advice is key." 

Gifting money is another option but there are IHT implications to consider: "If an individual leaves 10 per cent or more of their estate to a charity, for example, the rate of IHT on their estates will fall to 36 per cent." 

"Individuals can also insure against liability by taking out a life policy in trust to pay any IHT on death," she said. Pension death benefits are typically free of IHT.

"In the event of a residence being jointly owned, the property will go to the surviving owner and they will become the sole owner, irrespective of the will of the deceased," she added.  

Capital Gains Tax 
An 18 per cent capital gains tax is applied for basic-rate taxpayers on the gain they make on selling a property which is not their main home, rising to 28 per cent for higher-rate taxpayers. 

Annual capital gains tax exemptions of £12,300 can be deducted from the gain to determine the rate of tax applicable, she added. "Many individual’s do not, however, always make use of this, so planning in this area is vital as this exemption cannot be carried forward. This means that if it isn’t used in a tax year it is lost," she stressed.

Some assets are also CGT-free such as the main home, she added.  

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