Important Information - The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
THE amount that the taxman collects in Inheritance Tax is on the rise.
New figures have shown the taxman took in almost £600m more in Inheritance Tax (IHT) between April and December last year than in the same period the year before. It takes the total collected in IHT to £5.9bn, up from £5.2bn in 2020.
The figures from last year reflect the proceeds from deaths that happened some time before, due to the long time it takes for estates to work through the probate system. The increase may also partly be explained by delays caused by the pandemic, which pushed back some estates being processed so that they are only now showing up in the figures.
Nevertheless, a jump in IHT receipts is no surprise, and is likely to accelerate in the years ahead.
The system for IHT allows individuals to pass on certain levels of wealth without the tax being payable, known as the ‘nil-rate band’, but those levels have been frozen for some time and will remain so for many years to come.
Currently, each of us can usually pass on £325,000 to beneficiaries without IHT applying. This being tax - there are many exceptions to this. For example, spouses and civil partners can pass on anything they like to each other without IHT being payable. Wealth held in pensions can also potentially fall outside of estates for IHT purposes.
If the wealth being passed on includes a primary residence - like the family home - an additional £175,000 can be passed on without IHT applying, taking the potential nil-rate band to £500,000.
What’s more, spouses and civil partners can pass on any unused nil-rate band to each other, so a surviving spouse who has passed the entirety of their partner’s unused nil-rate band could, potentially, pass on as much as £1m without IHT being an issue.
Those sound like big numbers but bear in mind that rapid house prices rises, and the strong returns we have seen for assets like shares in recent years, means that the value of estates has been rising strongly.
With current IHT allowances now frozen - the Government says they will not change until 2026 at the earliest - even more people will be pulled within the scope of IHT.
There are measures that you can take to mitigate the effects of IHT, and to make the process of administering the estate of a loved one easier after death. That might include informing pensions schemes of where you wish any death benefits to go, or it might mean taking advantage of the various exemptions in the IHT system for gifting money during your lifetime.
The key is to act early and seek out help to work out if you’ve got an IHT liability. It can help to talk to someone about your investments, particularly about your pensions. Whether you're looking for advice on a one-off or ongoing basis, an authorised financial adviser can help to provide you with a personal recommendation.