As the saying goes, only two things in life are certain; death and taxes.
When figures were released last week showing that £4.6 billion was paid in Inheritance Tax (IHT) in the UK last year, few could be forgiven for thinking that taxes on death may have to be added to that list as well soon.
The Government figures show that IHT paid across the UK had increased by 20% on the previous year and by 50% on the amount paid in 2010. The Treasury have conceded that they expect the number of estates that attract an IHT bill to double in the next five years. The main reason being cited for this increase is the recovery of house values to pre-recession levels across the country, and in some parts, exceeding those values. In April’s budget, the Government announced that a new tax allowance would be introduced to protect the main asset in most individual’s estates – the family home.
From April 2017 a new 'Main Residence Nil-Rate Band' is expected to be introduced for every individual and will be available in addition to the current Nil Rate Band of £325,000 (which hasn’t risen since 2009) available on every individual's estate before it attracts IHT at a rate of 40%. The new Main Residence Nil Rate Band will be £100,000 for every individual and will be available where their home is passing to a direct descendant. The allowance will rise by £25,000 each April until it reaches £175,000 in April 2020. Married couples will benefit from being able to pass their estate to the survivor of them on first death, who will also inherit their spouses unused nil rate bands. This will therefore give married couples a potential IHT allowance on the second individual’s death of £1 million after April 2020.
IHT is clearly a useful source of income for the Government. Given recent fiscal predictions regarding the UK economy (especially given the effects of the Brexit vote) together with a new Chancellor of the Exchequer, who is currently keeping his plans and strategy close to his chest, the official financial Statement in the autumn could lead to further changes or indeed a reversal of current proposals.
With a greater number of individuals finding their estates could attract an IHT bill on death, we are seeing an increase in individuals requesting Inheritance Tax Planning advice. There are a number of options available to reduce any potential IHT bill, including carefully planned periodic lifetime gifting or by utilising Trusts. Of course every individual has unique circumstances and a careful analysis of an individual’s assets, income and expenditure is required before deciding on the best course of action to ensure what they have worked hard for all their life can be passed on to their loved ones with as little IHT being incurred as possible.
If you have any questions about Inheritance Tax planning or dealing with Inheritance Tax on the Estate of a family member, please contact Chris Gardiner on 03330 430150.
