Tax
UK Inheritance Tax Receipts Rise – Reactions
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This week, the UK government’s tax authority released its annual inheritance tax receipts for the period April to the end of August 2022.
Latest figures from the UK’s tax authority HMRC show that it raised £2.9
billion ($3.3 billion) in inheritance tax receipts
over the period April to the end of August 2022. This is a
£300 million increase from the same period the year before. As
the editorial team at WealthBriefing notices, the rise
and fall in revenues can highlight whether measures to mitigate
the impact of IHT work or not; they also reflect changes to asset
values – often a hot political issue as more people get dragged
into the tax net.
Under UK law, inheritance tax is paid at 40 per
cent on assets valued above a certain threshold. Around one in
every 25 estates pay the tax, and a combination of
inflation and decades of house price increases are taking more
and more estates above the threshold.
Here are reactions from advisors and lawyers on the matter.
Andrew Aldridge, partner at Deepbridge
Capital
“Inheritance tax receipts continue to needlessly grow
and this trend is not set to slow as more and more households
potentially fall into paying the tax.
However, prudent financial planning should enable many
individuals in or approaching retirement to mitigate
this tax on their estate providing some financial peace
of mind. Indeed, Deepbridge’s recent research suggested that
Business Relief investments have become an increasingly common
tool used by financial advisors and we expect this demand to
continue to grow.”
Laura Tommis, business and relationship development
manager at ZEDRA
“The notable increase in IHT receipts is no doubt
largely due to the continuing rises in real estate values as well
as the relatively strong performance in stock markets over recent
times. Whilst we will have to wait to see if the current
inflation rates will eventually have an impact on property
prices, it is clear that the recent interest rate rises will only
have a positive impact on savers and, in
turn, IHT receipts.
It is understandable that relief against IHT from new
or increased government allowances is unlikely to feature high on
parliamentary agenda due to the problems caused by the ongoing
cost-of-living crisis. However, individuals still have various
measures available to them to reduce the impact
of IHT on their beneficiaries. A professionally drafted
and up-to-date will should be the starting point of ensuring
that IHT reliefs are effectively applied following the
testator’s death. Equally, controlled gifting via trusts
can achieve notable IHT savings during an individual’s
lifetime as well as, of course, support with a family’s overall
succession planning.”
Alex Davies, CEO and founder of Wealth
Club
“The new PM has stated that she would
review inheritance tax rules if she came into
power. But it’s hard to imagine that IHT was top of the to-do
list for Friday’s mini budget, especially with so many more
pressing issues at hand. The tax is a vital cash cow
for the Treasury, and the extra £300 million collected in the
last four months is certainly needed.
Nonetheless, there are a few reforms the government might
consider. Scrapping the tax altogether seems
unlikely, but cutting the 40 per cent
rate or increasing the threshold which has been frozen
since 2010 at £325,000 would all be welcome changes.
The good news, however, is that there are already several
perfectly legitimate and sensible ways to reduce the amount
of inheritance tax your family might have to pay
on your death. It is for this reason
that inheritance tax in some circles is referred
to as a ‘voluntary tax’.
Make a will
Making a will is the first step you should take. Without it, your
estate will be shared according to a set of pre-determined rules.
That means the taxman might end up with more than its fair
share.
Use your gift allowances
Every year you can give up to £3,000 away tax free.
This is known as the annual exemption. If you didn’t use it last
year, you can combine it and pass on £6,000. You can also give up
to £250 each year to however many people you wish (but only one
gift per recipient per year) or make a wedding gift of up to
£5,000 to your child; up to £2,500 to your grandchild and £1,000
to anyone else.
Make larger gifts
Pass on as much as you like IHT free. So long
as you live for at least seven years after giving money
away, there will be no IHT to pay.
Leave a legacy – give to charity
If you leave at least 10 per cent of your net estate to a
charity or a few other organisations, you may be able to get a
discount on the IHT rate – 36 per cent instead of
40 per cent – on the rest of your estate.
Use your pension allowance
Pensions are not usually subject to IHT – they can be
passed on tax efficiently and, in some cases,
even tax free. If you have any pension allowance left,
make use of it.
Set up a trust
Trusts have traditionally been a staple
of IHT planning. They can mean that money falls outside
an estate if you live for at least seven years after establishing
the trust. The related taxes and laws are complicated – you
should seek specialist advice if you are considering this.
Invest in companies qualifying for Business Property
Relief
If you own or invest in a business that qualifies for Business
Property Relief – the majority of private companies and some
AIM-quoted companies do – you can benefit from
full IHT relief. You must be a shareholder for at least
two years and still be on death though.
Invest in an AIM IHT ISA
ISAs are tax free during your lifetime but when you
die, or when your spouse dies, if later, they could be subject to
40 per cent IHT. An increasingly popular way of getting
around this is by investing your ISA in certain AIM quoted
companies which qualify for BPR. You must hold the shares for at
least two years and if you still hold them on death you could
potentially pass them on without a penny being due
in inheritance tax.
Back smaller British businesses
The Enterprise Investment Scheme (EIS) and the Seed Enterprise
Investment Scheme (SEIS) offer a generous set
of tax reliefs. For instance, SEIS offers up to 50 per
cent income tax and capital
gains tax reliefs, plus loss relief if the investment
doesn’t work out. But EIS and SEIS investments also qualify for
BPR, so could be passed on free of IHT.
Invest in commercial forestry
This is an underused option for experienced investors. Pension
funds and institutions have long ploughed money into forestry.
The Church Commissioners has a forestry portfolio worth £400
million. Commercial forest investments should be free
of IHT if held for at least two years and on death.
You should also benefit from capital appreciation in the value of
the trees (and the land they are on) and from any income produced
by harvesting the trees and selling the timber (this income may
also be tax free).
Spend it
One sure-fire way to keep your wealth away from the taxman’s
hands is to spend it."