Inheritance Tax Receipts On the Rise

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Thursday, July 20, 2017

Inheritance Tax Receipts On the Rise

Inheritance tax receipts are at a record high and are set to rise again this year, despite the introduction of the new main residence nil-rate band...

What can be done?
Last year British families paid a record £5bn in inheritance tax, a rise of 9 per cent on the previous year. Partly this reflects increased property values but it is set to rise again this year despite the introduction of the new main residence nil-rate band.

Inheritance tax is charged at 40% (or 36% if a minimum of 10% is left to a charity) on the portion of the deceased estate's worth over £325,000. Although house prices have risen over the last 10 years, the basic inheritance tax allowance has remained unchanged since 2010.

Main Residence Nil-Rate Band
Last April a new main residence nil-rate band was introduced for the 2017/18 tax year. This measure introduces an additional nil-rate band when a nominated residence is passed on death to a direct descendant.
It will be phased in as follows:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

However, many of our clients will not benefit!
If the total value of your estate is over £2m the additional allowance is reduced by £1 for every £2 that the estate exceeds that amount. Whilst pension funds don’t count towards the limit, business assets do – even though investment in trading business assets is actually exempt from Inheritance tax (if Business Relief applies).

If you do qualify
It’s important to review your Will planning to ensure that your property does actually pass to your descendents in a way that satisfies HMRC rules (its fine to go to the surviving spouse first) and therefore this is now on our review list as a matter of course.

Give and live
As financial planners it is our job to look at your overall estate planning positon and help you (with the aid of our bespoke lifetime cashflow models) to decide how generous you can afford to be with yourself and others.
Our 'Give and Live' philosophy encourages our clients to enjoy their wealth, invest in memories and live the life they've aspired to whilst helping them to structure planned gifting strategies to the next generation or beyond, consider philanthropy or reinvest in business assets (or facilitate the next generation to do that).

Trusts still play an important role
Trusts remain a valuable planning tool helping to protect gifted wealth and are particularly useful when considering how to help the next generation onto the housing ladder (yet gain some asset protection beyond a direct gift) or for longer term inter-generational planning.
We can help to design solutions that are bespoke to your circumstances, working collaboratively with a network of partners (accountants, solicitors etc.). It’s all part of our role so do call on us for guidance at any time.

The small stuff counts 
And remember to make sure that you use all the little allowances  – the £3,000 annual allowance, small gifts allowance of £250 to anyone, gifts on marriage and if you have surplus income talk to us about how that can be gifted immediately out of your estate saving 40% on the lot!

To find out more about how we can help give us a call on 01704 571777.