In 2014/15 the Government raised around £3.8 billion in inheritance tax, with the average taxable estate paying £161,000 in tax.
With approximately 5% of UK estates paying the tax, the funds raised are relatively trivial in terms of the Government’s overall tax receipts. Nevertheless, the tax take has been increasing steadily for the last 5 years and is forecast to continue to grow.
The Government’s announcements last year make it clear that it remains interested in inheritance tax and, whilst plans are afoot to increase the threshold at which families pay it, these increases are only likely to benefit those couples with combined estates of less than £2 million. As such, for those holding high value residential property (particularly in London), these changes are unlikely to impact the tax they might pay in the event of death.
Planning for death is an important, but often overlooked, step for any individual; this includes making a will but it should also include a wider review of their affairs to see if any simple steps can be taken to mitigate the inheritance tax liability that might arise on their death.
There are sensible steps that anyone can take to mitigate inheritance tax, one of the simplest being to make gifts in your lifetime. In the usual course of events, should you survive for 7 years that gift will not be subject to inheritance tax in the event of your death. As noted in the article below, after 3 years the inheritance tax due on the gift begins to taper down at a rate of 20% for each year survived, until the tax rate applied on death reaches 0% after 7 years.
Steps to mitigate inheritance tax should not, however, be taken lightly. There are a lot of important considerations involved, along with many traps that can quickly unravel the best made plans (and, without careful planning, generally the point at which these traps are raised is after death, when nothing can be done).
New figures show that more people are taking advantage of tax breaks to prevent their families having to pay inheritance tax. Many people know that cash, property and assets given away more than seven years before you die are exempt from inheritance tax. But it appears that people are becoming increasingly aware that there is tapered relief on gifts given away three to seven years before you die too. According to figures from HM Revenue & Customs (HMRC) tax relief on gifts transferred between three and seven years before death was worth £30 million in 2014/15, up from £25 million in 2012/13. And HMRC predicts it will rise to £35 million in 2015/16.