Inheritance Tax

24.02.2023
Richard Ince
Financial Planning, Tax
Richard Ince

As part of the Autumn Statement 2022, the government is freezing Inheritance Tax (IHT) thresholds for an extra 2 years, until April 2028. This means that you could risk losing up to 40% of your estate.

Richard Ince

IHT is a tax on the money or assets that a person leaves behind when they die. It can also apply to gifts that are made within 7 years of death.

Each individual has a nil rate band (NRB) of £325,000, with any excess being subject to IHT on death at 40%. In addition to this, there is also a residence nil rate band (RNRB) of £175,000, which is available when residential property is left to direct descendants.

Transfers of assets between married couples and civil partners in lifetime or on death are exempt from IHT. On the death of an individual, any unused part of their NRB or RNRB can be transferred to the estate of their surviving spouse or civil partner.

An increase to property prices have meant that a growing number of people now have to pay the tax. According to the Land Registry of England and Wales, the average house price in the UK is around £296,000. This would therefore use a large proportion of the available nil rate bands.

There are, however, a number of ways in which you can mitigate or plan for the potential IHT liability on your estate:

  • Make a tax-efficient will
  • Establish trust arrangements
  • Utilise exemptions by lifetime gifts
  • Take out life cover
  • Make IHT efficient investments that qualify for IHT relief.
  • Making personal pension contributions, as these are exempt from your estate on death
  • Leaving money to charities*
  • Spending your money

*should you leave 10% of your net estate to charity, this reduces any IHT liability to 36%.

Clearly, this is an area of financial planning that needs careful consideration, as other issues, such as the availability of capital for potential care fees will need to be factored in.

For comprehensive inheritance tax planning advice, it is highly recommended that you speak to your accountant and independent financial adviser.

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