According to HM Revenue & Customs, the total Inheritance Tax (IHT) receipts for April 2023 to September 2023 were £3.9 billion. This is a £400 million increase from the same period in the previous year, with June 2023 recording the highest IHT receipts ever received.
WHAT IS INHERITANCE TAX?
Inheritance Tax is usually charged at a rate of 40% against the total estate of a deceased individual.
The total estate will be the balance of a deceased’s assets less any debts and funeral expenses.
Under the current IHT regime, each individual has a tax-free allowance of £325,000 called their Nil Rate Band. This Nil Rate Band means that the first £325,000 of their estate passed free of IHT.
In addition, if the individual has a main residential property that they own and occupy, provided that their intention is to pass the property to their direct descendants and their estate is valued at no more than £2 million, then they should be entitled to a further £175,000 tax relief called the Residence Nil Rate Band.
Married couples and civil partners can share their Nil Rate Band on the death of the second of them, provided that the first to die had not used all of their own allowance on their death. This would provide a tax-free allowance of £650,000 if the first spouse or civil Partner had an unused Nil Rate Band amount remaining. The Residence Nil Rate Band, provided all of the requirements are satisfied, can also be shared, providing a further tax-free allowance of £350,000. This potentially allows up to £1,000,000 in tax free allowances for home-owning married couples or civil partners with children.
THE RISK OF HIGHER IHT RECEIPTS
The value of Inheritance Tax receipts have seen an upward trend over the last decade. Research by Wealth Club suggests that the average IHT bill could increase to £233,000 in this tax year with over 30,000 estates liable to IHT. This estimation shows a 9% increase from the average IHT bill three years ago and a 12% rise in the number of estates paying IHT.
A combination of rising house prices, inflation and frozen Nil Rate Band allowance are fuelling a rise in the value of many estates. Therefore, the number of estates liable to IHT is increasing year on year.
With the Nil Rate Band currently frozen at £325,000 until at least April 2028 as part of a five-year freeze on tax allowances, it is important for individuals to consider the current risks of their estate being liable to pay IHT.
PLANNING YOUR ESTATE
If you have concerns regarding IHT, there are a number of inheritance tax planning options that you can use to structure your estate in the most tax efficient way.
Planning your estate can be complex. You should always consider obtaining professional advice to ensure that your wishes for how you intend your estate to pass on your death are planned correctly.
If you would like assistance with estate planning or have any questions, please do not hesitate to contact our Wills, Trusts & Estates Department, Heather Lally, Rachel Talbot or Stephen Mackellar on 01244 354800 or email: Heather.Lally@dtmlegal.com
This article is not intended to be comprehensive or to provide specific legal advice. It should not be relied upon in the absence of specific advice given in relation to particular circumstances.
