Inheritance Tax Levels Rising at Record Rates

The level of inheritance tax being paid has been steadily increasing year on year since April 2010.

However, the last tax year has been a bumper one for HM Revenue & Customs, with figures showing that a record £4.7 billion was paid in inheritance tax during the 2015-16 tax year; this is a 22% increase on the amount of inheritance tax paid during the 2014-15 tax year, and is almost double the normal growth pattern seen in previous years.

The increase in inheritance tax being paid to HM Revenue & Customs is primarily down to an increase in the value of assets, driven in part by the ongoing growth in the property market.

As a result what was once a tax on the very wealthy is now becoming a burden for a whole new generation. Whilst property prices are rising, the inheritance tax threshold has remained static at £325,000 since April 2009 with no prospect of this being increased until after 5 April 2021 at the earliest.

The Government has made big noises about doing away with inheritance tax on estates valued at up to £1 million by the announcement of an additional nil rate band of £175,000 specifically for the family home. As with the main threshold of £325,000 this nil rate band can also be transferred to the surviving spouse, so there is a potential £500,000 nil rate band available to transfer.

This, coupled with the surviving spouse’s own nil rate bands, results in the much talked about £1 million tax threshold. What has been less publicised is that the additional nil rate band is being introduced gradually from 6 April 2017, with the full £175,000 not coming into force until the 2020-21 tax year, so the £1 million inheritance tax free estate is still some years away.

Even then, this allowance will only apply where the home has been left to a direct descendant so will do nothing to ease the burden for childless couples or those who have never actually owned their own home.

With the property market continuing to grow, more and more estates will be caught by inheritance tax, so it is important to put steps in place to ensure your assets pass to your loved ones and are not being taken to pay inheritance tax.

This can be as simple as using your £3,000 gift allowance each year, or where you have surplus income consider making regular gifts out of this income and ensure that these gifts are documented.

Other more bespoke planning may also need to be considered, such as making lifetime gifts directly to your family, or putting assets into trust. However, it is crucial that you seek professional advice, as all of these options need to be balanced against your own individual needs and living standards, whilst also making sure that you are not unwittingly triggering a different tax charge such as capital gains tax.

If you would like help and advice on your own personal circumstances, please contact Louise Johnson on 01777 707373 or email her at louise.johnson@wrightvigar.co.uk – we would be delighted to have an opportunity to explore ways to minimise your tax liabilities and ensure your wishes and aims are being met.