The Importance of Lifetime Tax Planning as Past Years Figures Released
Louise Nelson who is part of Wills, Probate, Tax & Trusts team, highlights HM Revenue & Customs’ (HMRC) recently released Inheritance Tax (IHT) figures for the past year.
HMRC’s recently released figures show that they collected an extra £729million over the past year, the largest single-year increase in five years. The final IHT bill for the financial year 2021/22 came to £6.1billion, up 14 per cent on the previous year. The previous record of £5.36 billion was set in 2019. The Office for Budget Responsibility predicts the bill will grow to £8.3 billion by 2026.
The next review date for the nil rate band (the value above which IHT becomes payable) is 2026 having been unchanged (at £325,000) since 2009. Figures show that between April 2009 and June 2022 the average cost of a UK property had risen by £140,129. Despite the introduction of the residence nil rate band from April 2017, (which is available to some estates provided certain conditions are met), such inflated house prices mean more estates are falling outside the IHT tax free band.
There are a number of strategies that can be used to seek to minimise exposure to IHT, which is payable on the balance of the estate above available tax-free allowances, at a rate of 40%.
There is no IHT payable at all, whatever the value of the estate, on property going to a widow or widower or to a charity. If these beneficiaries do not fit one’s circumstances then perhaps consider tax efficient investments which will benefit from Business Relief and so be outside the scope of IHT. Planning ahead and making financial gifts to make use of annual allowances will also assist in reducing the size of the estate for IHT purposes. Pensions, Life Insurance policies and Trusts are all useful tools in conjunction with a professionally drafted Will.