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."