The government has seen its Inheritance Tax (IHT) intake increase by £1bn in the last year, as tax experts note that higher house prices and frozen thresholds mean it is no longer just a tax on the wealthy.
Figures from HM Revenue and Customs (HMRC), published on 25 April, showed IHT receipts up by £1bn in the year to March 2023. Total Inheritance Tax receipts for this period were £7.1bn, with the rise continuing a trend of record-breaking intakes for HMRC.
The standard IHT rate is currently 40%, paid on the value of any estate above £325,000; in addition, homeowners benefit from an extra £175,000 allowance if they pass on their primary residence to a child or grandchild. These thresholds, however, have been frozen until 2028, which inevitably means more people are likely to be dragged into the IHT net.
HMRC has also established a specialist team to target estates of wealthy deceased individuals to investigate whether a greater IHT liability may have been due than originally calculated by estate executors. Data obtained through a Freedom of Information request has revealed that a total of £326m was collected by HMRC because of targeted IHT investigations in the year to March 2022.
More than 13,000 individuals have been embroiled in IHT investigations since 2019. While some of these bereaved families may have acted deliberately, others are likely to have made innocent mistakes and simply fallen foul of the complexities of IHT. Two areas where mistakes commonly occur relate to lifetime gifts and the valuation of personal possessions.
Taking sensible tax steps
It’s important to ensure you are in the best place possible to take advantage of any allowances, exemptions and reliefs available to avoid paying more IHT than is necessary. Sensible tax planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. We can help – please get in touch.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.