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Inheritance tax receipts jumped to £5.5 billion between April 2021 and February 2022 according to data released by HMRC today. This is £0.7 billion higher than in the same period last year. The increase may be attributable to rising property prices pushing more estates above the threshold for inheritance tax, however, it should also be a wake-up call for anyone putting off their estate planning.

Alex Davies, CEO and Founder of Wealth Club said: “Tax on death is not just for the very wealthy. Rising house prices, especially in the southeast and London, have pushed many homeowners over the IHT threshold, not helped by the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026. The revenue generated from inheritance tax plays an important part in the government’s spending programme.

The good news is that there are a number of ways that people can legitimately reduce, or even potentially wipe out an estate’s inheritance tax liability. This means that more can be passed on to loved ones without the government taking a sizeable cut and without losing control of your assets in your lifetime.

Such as:

  • Give money away. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts. You can give unlimited amounts away but typically these take seven years to be completely inheritance tax free. Of course, once you give away the money you have lost control. If you need it back for an emergency, that’s not an option.
  • Invest in companies that qualify for Business Property Relief. These are typically inheritance tax free after two years. Investing in unquoted businesses can be risky, however, unlike giving the money away, you retain control.
  • Invest in an AIM ISA. ISAs are not inheritance tax free. When you pass away, your loved ones could miss out on 40% of your hard-earned cash.  AIM ISAs are a popular way around this. They are riskier but after two years they could be IHT free.
  • And finally, whatever you do, make sure you make a will. If you don’t, the law will decide how your estate is distributed and it certainly won’t be the most tax efficient way.”

Useful IHT statistics

  • Inheritance tax receipts during 2020-21 tax year totalled £5.4bn, a 4% (£190m) increase from the previous tax year.
  • 33,000 estates paid IHT, up by a third according to the Office for Budget Responsibility, with the average payment around £160k.
  • If the IHT nil rate threshold stays as it is until 2026 as planned, the Government will bring in an extra £1bn as house prices continue to rise.
  • Across the UK IHT is paid on around one in every 25 estates, in London this is higher.
  • Heirs must pay IHT within sixth months of your death.
  • The latest forecasts by the Office for Budget Responsibility has IHT receipts reaching £6.5 billion by 2023-24.
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