£3.2 Billion in Inheritance Tax Collected by HMRC

Between April and August 2023, HMRC collected a whopping £3.2 billion from inheritance tax (IHT). This amount is £0.3 billion more than what was collected during the same months in the previous year. What’s driving this rise? The Daily Express wrote that IHT personal allowance thresholds have been frozen and are set to remain this way until 2028 at least. With the inflation rate increasing and house prices skyrocketing, more and more families find themselves eligible to pay this tax.

Laura Hayward, a notable figure in the wealth management industry, points out, “The consistent rise in IHT receipts is becoming a major revenue source for the Treasury.” She further emphasizes that given the current economic indicators, this trend isn’t expected to diminish soon.

Tips to Manage the Inheritance Tax Burden

For many families, the increasing tax burden can be daunting. However, Laura Hayward suggests that there are several strategies families can adopt to reduce their IHT obligations:

  1. Consider Gifting: One of the simplest ways to reduce your IHT is to consider giving gifts to family members. Generally, gifts are not subject to IHT unless the giver passes away within seven years of giving the gift. Moreover, there’s an annual gift allowance of up to £3,000 each tax year that won’t be liable for IHT, even if the giver dies within the seven-year period.
  2. Tax-efficient Investing: By placing your money in specific investment vehicles, you can ensure that it grows in a way that minimises your IHT liability.
  3. Business Relief and Trusts: These are more complex strategies, but they can be highly effective. Trusts, in particular, can ensure that assets are passed down responsibly and efficiently from one generation to the next.

Julia Peake, another expert in the field, underscores the importance of being proactive about estate planning. She urges people not to assume that IHT won’t affect them. She says, “It’s crucial to consider not just your property’s value but your entire net estate after deducting liabilities and applying reliefs.”

Importance of Estate Planning and Seeking Professional Advice

Navigating the world of taxes, especially something as intricate as IHT, isn’t easy. However, Julia stresses that starting the estate planning journey early, ideally when one begins accumulating wealth, is essential. Using tools like trusts from the onset can pave a smoother financial planning journey.

Moreover, Julia highlights the significance of maintaining an updated will. For instance, if you marry, any prior wills are rendered null and void, necessitating new ones.

To get the best out of these strategies and understand the most suitable approach for individual circumstances, seeking professional advice can be invaluable. An advisor can guide families through available exemptions and offer insights on managing potential IHT liabilities.