Inheritance Tax receipts increase: will you be affected?
Figures recently published by HMRC show that Inheritance Tax (IHT) receipts between April 2021 and March 2022 were up by £700m to £6.1bn. This represents a 13% increase compared to the previous year.
HMRC has seen year-on-year increases in IHT collections. Obviously this will be welcomed by the Treasury, but not by families having to pay this additional tax on the death estate of their loved one.
Who pays inheritance tax?
Inheritance Tax is paid from estate funds to HMRC. It is paid after someone has died and before the remaining estate can be passed on to beneficiaries. Payment of IHT was previously restricted to only a small percentage of the wealthiest estates. However, many more people are now facing this extra, unwelcome tax after death. This is partly driven by the ongoing increase in house prices, as the value of the residential property makes up the largest share of most estates.
Inheritance tax is only paid on estates valued over the relevant nil rate band. The standard nil rate band and residence nil rate band have not increased for several years and remain frozen until at least April 2026. This means we can expect to see IHT receipts continue to rise and affect more and more families.
How do you know if your estate will need to pay inheritance tax?
There are different rules for different family situations. For example, a single person with no children will pay inheritance tax if their total estate (including property) is worth more than £325,000. However, a married couple, leaving their estate (including their main residence) to each other and then the combined estate to their children on 2nd death, may only pay inheritance tax if the combined estate is worth over £1m.
What can you do?
Don’t be afraid to ask an expert! The good news is that the Covid pandemic has meant more people are open to discussing estate planning. It’s crucial to get expert advice as there are tax efficient ways to pass wealth onto loved ones. When making your wills, an experienced estate planner, such as APS Legal, can explain the rules on Inheritance Tax and calculate whether or not this will affect you and your family.
Contact Jenny Fothergill at APS Legal Beverley for more information.