The latest figures released by HMRC reveal that it has collected a staggering £5.3bn of inheritance tax (IHT) from families in 2017/2018, an increase of 13 percent on the previous year.
A major factor in the record annual amount was the ongoing freeze of the IHT threshold at £325,000, which has failed to keep pace with the rise in asset values. Many estates, especially those here in the South East, have also been pushed over the IHT Nil Rate Band due to high property values and a failure to plan.
The new residence nil rate band relief which came into force on 6 April 2017 grants parents and grandparents an extra tax-free amount, currently £125,000 per person, if they leave their home to their children or grandchildren. This means married couples may pass on a combined estate worth up to £900,000 (rising to £1m by 2020) before IHT is payable.
You can take steps now to reduce the amount of IHT payable on your estate, including:
- Making regular gifts from surplus income and using your annual personal allowance, pension planning and setting up trusts.
- Structuring your will in the most tax efficient way.
- Reviewing your marital status to benefit from spousal exemptions.
- Buying IHT-free investments.
Whilst there have been some changes to the threshold of IHT which take into account the increased value of the family home, there is also other financial planning which should be considered to reduce the tax burden for families. Unfortunately, little or poor planning only benefits HMRC and families need to give this area some significant thought.
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