HMRC have released their latest statistics on Inheritance Tax (IHT). They showed that a record of £5.4 billion was collected in the last year. This is an increase in IHT compared to £4.8 billion in the previous year. It is expected to reach £6.4 billion by 2022/2023.
And, it may rise further, with one in ten families expected to be affected, rather than the current one in twenty. There is also talk within some of the major political parties of lowering the IHT threshold. A larger number of estates would then become eligible for tax, putting more families at risk.
The current threshold is £325,000 for an individual, and any amount over that is taxed at 40%. But, other allowances mean a family home of up to £900,000 can be passed on free of tax. There are current plans to raise this to £1 million by 2021. However, the alternative policies include lowering the threshold to £625,000 or even £250,000.
Planning ahead can protect your estate from IHT and improve your loved ones’ future financial situation. There are many ways to reduce how much your estate is taxed, including:
- Making a Will – Without a Will, your estate will be managed by the rules of intestacy. This often leaves part of your estate to your children, which can trigger IHT. If it is given to a spouse instead, IHT is usually avoided.
- Gifts - Giving money from your income can be tax-free, as long as it doesn’t affect your way of life. However, this can be difficult to manage. Gifts can still be taxed if given in the seven years before you died and if you give away over £3,000 in one year. Seeking advice from an Accountant before gifting large sums of money is advised.
- Creating a Family Protection Trust - A Trust can ensure that your estate reaches your family safely, much like a Will. Usually, when an asset is placed in a Trust, it is no longer considered part of your estate. The flexibility of a Trust means you don’t have to cause IHT problems for your beneficiaries’ own estates.
Our experienced professionals here at Severn Estate Planning can offer advice and answer any questions you have about Inheritance Tax. We can provide a free consultation as well as a wide variety of services to help you with your estate planning. Contact us now if you need help dealing with your Inheritance Tax.