Inheritance tax (IHT) receipts have reached record highs this year and in its latest tax receipt data published on 23rd June 2022, HMRC said that the high relates to a combination of larger wealth transfers made during the pandemic and rising values in assets such as property. The government have confirmed that they have now made the decision to freeze the current tax free thresholds until 2026.
In the last decade IHT paid has more than doubled from under £3bn to more than £6bn which is the figure paid in 2021/22. The rising tax could pose a risk for homeowners whose property value has grown over the past year.
Ways to minimise IHT
Many people will find themselves within the IHT threshold because they have not started to plan early enough. The earlier you start IHT planning, the less IHT you will pay on your estate. The current rate of IHT is forty percent. Planning for IHT does not need to be a complicated and expensive process as most people think.
Gifting is one way that IHT can be mitigated but does have some important points to consider. If an asset is gifted, you must survive at least seven years for the gift to be fully exempt from IHT. This type of gift is called a potentially exempt transfer or PET. If the individual making the gift does not survive by seven years then the PET is said to fail and IHT is due on the gift, unless the deceased has a Will which states otherwise.
Accurate records should be kept in order that the executors or personal representatives of the estate can identify gifts made in the deceased’s lifetime and provide accurate details of all gifts to HMRC.
If you require any further information or advice regarding any of the points raised in this article please contact us on 0161 696 6238 or complete our online enquiry form and a member of our estate planning team will contact you directly. Many of our practitioners are members of STEP (The Society of Trust and Estate Practitioners).