Inheritance Tax: Are You Prepared?

In the last 12 months, Inheritance Tax receipts have reached a record of £6 billion. This is an increase of a whopping £1 billion compared to the previous year. Recent research shows that Inheritance Tax bills may be higher for around 50% of the British population, just because a lack of financial planning. Unfortunately, estates in the UK are about to give HMRC hundreds of millions of pounds unnecessarily.

Inheritance Tax (IHT) is levied on an estate of someone who has died and is leaving assets to beneficiaries, as long as the estate is over £325,000. IHT is charged at 40%. This percentage is charged just on the parts of the estate which is valued over the £325,000 threshold. As an example, if an estate is worth £400,000 the 40% will be charged on the £75,000. It’s worth noting too that any assets given to your spouse or civil partner are exempt from Inheritance Tax.

So why has there been an increase in IHT receipts? Well, it’s no surprise given the current booming property values, which has pushed more families over the IHT threshold. The frozen nil rate tax band has also contributed to the increase.

IHT can be confusing as there are many different rules about exemptions and gifting. It’s a good idea to sit down and discuss plans with a financial adviser so that you can avoid paying too much tax, and have peace of mind knowing that your estate and assets will be handled in accordance to your wishes. A failure to prepare means that you may not be able to give as much to your loved ones, or in the way that you want.

It seems that younger generations are becoming wealthier but more reluctant to plan for Inheritance Tax or death. There are more ways than ever to earn money these days, so unless younger generations start to embrace financial planning, the IHT receipts are only going to increase! This is especially true given that the Residence Rate Nil Band (RNRB) is tapered for estate values over £2 million, which is easily done in London.

Simon Dawson who is the Chief Commercial Officer of Legacy Release warned that IHT receipts will ‘continue to increase incrementally until at least 2026’ as a result of Rishi Sunak’s budget choices, economic changes and ageing demographic trends.

Get in touch today with Kindred Estate Planning to ensure that you don’t end up paying the price (literally!) for a lack of financial planning.