Rise in UK inheritance tax receipts – Reactions
This week the UK Government Revenue Authority published its annual inheritance tax receipts for the period April to the end of August 2022.
Latest figures from UK tax authority HMRC show it collected £2.9bn ($3.3bn) in tax revenue over the period from April to the end of August 2022. This is an increase of £300 million compared to the same period the previous year. As the editorial team of Heritage Briefing opinion, the rise and fall of income can highlight whether measures to mitigate the impact of IHT work or not; they also reflect changes in asset values – often a hot political issue as more and more people are drawn into the tax net.
Under UK law, inheritance tax is paid at 40% on assets assessed above a certain threshold. About one in 25 estates pays tax, and a combination of inflation and decades of rising house prices are pushing more and more estates above the threshold.
Here are the reactions of advisers and lawyers on this subject.
Andrew Aldridge, Partner at Deepbridge Capital
“Inheritance tax revenues continue to grow unnecessarily and this trend is unlikely to slow as more and more households are at risk of having to pay the tax.
However, careful financial planning should allow many people in or nearing retirement to mitigate this tax on their estate, providing them with some financial peace of mind. Indeed, recent research from Deepbridge suggests that Business Relief investments have become an increasingly common tool used by financial advisors and we expect this demand to continue to grow.
Laura Tommis, Business and Relationship Development Manager at ZEDRA
“The notable increase in IHT revenue is no doubt largely due to the continued rise in real estate values as well as the relatively strong performance of equity markets of late. will eventually have an impact on property prices, it is clear that the recent interest rate hikes will only have a positive impact on savers and, therefore, on IHT receipts.
It is understandable that IHT relief from new or increased government allowances is not likely to feature high on the parliamentary agenda due to the problems caused by the current cost of living crisis. However, individuals still have various measures to reduce the impact of IIT on their beneficiaries. A professionally drafted and up-to-date will should be the starting point to ensure that IHT relief is effectively applied after the testator’s death. Similarly, donations controlled through trusts can provide significant IHT savings over an individual’s lifetime as well as, of course, support a family’s overall estate planning.
Alex Davies, CEO and Founder of Wealth Club
“The new Prime Minister has said she will overhaul inheritance tax rules if she comes to power. But it’s hard to imagine the IHT was high on the to-do list for the mini Friday’s budget, especially with so many more pressing issues to address.The tax is a vital cash cow for the Treasury, and the extra £300million raised over the past four months is certainly needed.
Nevertheless, there are some reforms that the government could consider. Abolition of the tax altogether seems unlikely, but reducing the rate by 40% or raising the threshold which has been frozen since 2010 to £325,000 would all be welcome changes.
The good news, however, is that there are already several perfectly legitimate and sensible ways to reduce the amount of inheritance tax your family may have to pay when you die. It is for this reason that inheritance tax is referred to in some circles as a “voluntary tax”.
make a will
Writing a will is the first step to take. Without it, your estate will be divided according to a set of predetermined rules. That means the taxman could end up with more than their fair share.
Use your gift allowances
Each year you can donate up to £3,000 tax free. This is called the annual exemption. If you didn’t use it last year, you can combine it and spend £6,000. You can also give up to £250 per year to the number of people you want (but only one gift per beneficiary per year) or make a wedding gift of up to £5,000 to your child; up to £2,500 for your grandchild and £1,000 for anyone else.
Make bigger gifts
Transmit as much as you want IHT for free. As long as you live for at least seven years after donating money, there will be no IHT to pay.
Leave a legacy – give to charity
If you leave at least 10% of your net worth to charity or a few other organizations, you may be able to get a reduction in the IHT rate – 36% instead of 40% – on the rest of your estate.
Use your retirement allowance
Pensions are generally not subject to IHT – they can be tax-efficiently passed on and, in some cases, even tax-exempt. If you have a retiring allowance left, use it.
Create a trust
Trusts have traditionally been a staple of IHT planning. They can mean the money is not part of an estate if you live for at least seven years after the trust is established. Taxes and related laws are complicated – you should seek specialist advice if considering this.
Invest in businesses eligible for Business Property Relief
If you own or invest in a business that qualifies for commercial property relief – the majority of private businesses and some AIM-listed companies do – you may qualify for full IHT relief. You must have been a shareholder for at least two years and still be at death.
Invest in an AIM IHT ISA
ISAs are tax-exempt during your lifetime, but upon your or your spouse’s death, if later, they could be subject to a 40% IHT. An increasingly popular way to get around this problem is to invest your ISA in certain AIM-listed companies that are BPR eligible. You must hold the shares for at least two years and if you still hold them upon death, you could potentially pass them on without a penny being owed in inheritance tax.
Supporting UK small businesses
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer a generous package of tax relief. For example, SEIS offers up to 50% tax relief on income tax and capital gains tax, as well as loss relief if the investment does not perform. But EIS and SEIS investments are also BPR eligible, so they could be transmitted without IHT.
Investing in commercial forestry
This is an underused option for experienced investors. Pension funds and institutions have a long history of investing money in forestry. The Church Commissioners have a forestry portfolio worth £400m. Commercial forestry investments should be exempt from IHT if held for at least two years and upon death.
You should also benefit from capital appreciation of the value of the trees (and the land they are on) and any income produced by harvesting the trees and selling the timber (this income may also be tax exempt). tax).
A surefire way to keep your wealth out of the taxman’s hands is to spend it.”