Inheritance Tax: Britons paying £1.2billion more than necessary – take action
Inheritance tax labelled ‘unfair’ and ‘cruel’ by expert
Inheritance tax is payable on the value of an estate of a person who has passed away, above a particular threshold. This IHT threshold is usually set at £325,000, although it can differ according to circumstance. Needless to say, Inheritance Tax is not particularly popular with Britons, some of whom have described the levy as a “death tax” in the past.
Some have even called for the levy to be scrapped, although there are also equal concerns the Chancellor Rishi Sunak could increase the tax due to COVID-19.
It is therefore likely many will be dismayed to note families are sometimes paying an unnecessary Inheritance Tax bill.
Analysis undertaken by Weatherbys Private Bank showed some Britons were paying more than actually required by failing to take action.
The bank showed a lack of action on ‘liquid wealth’ by those who are more well-off could mean a higher IHT bill in the long run.
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Weatherbys found that almost half of money tied up in estates worth more than £1million was in cash or invested in the 2017/18 tax year.
The total calculated was some £1.2billion, a staggering sum which could impact many families.
The banking group’s website read: “Some assets, real estate for example, are illiquid and hard to pass on during a lifetime.
“However, official HMRC figures show that large estates in fact have a greater exposure to liquid securities such as shares and cash, than they do to property.
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“Effective planning is possible, but larger estates seem to be missing the available opportunities.”
The issue with unnecessary Inheritance Tax often arises from a failure to plan ahead.
Generally, Britons, especially those with significant estates, are encouraged to undertake at least some level of estate planning ahead of their death.
This can ensure they legally avoid a hefty IHT bill as well as making provisions for any family, friends or charities an individual should so choose.
In many cases, this can involve speaking to a financial adviser who can help people to plan ahead and cover certain eventualities.
In the 2019/20 tax year, Her Majesty’s Revenue and Customs (HMRC) collected some £5.2billion of IHT receipts.
More than 75 percent of the total IHT amount, it was found, was paid by people with estates worth more than £1million.
There are, however, steps Britons can take ahead of time to legally reduce their IHT bill, whatever the value of their estate.
If a person leaves everything above their threshold to the following groups and people, there is usually no IHT to pay:
- A spouse
- A civil partner
- A charity
- A community amateur sports club
If someone chooses to give away their home to their children or grandchildren, it could increase their threshold to £500,000.
Britons are able to give away £3,000 worth of gifts each tax year under the ‘annual exemption’ process which could assist with a tax bill.
In addition, the small gifts Inheritance Tax rule means people can also give as many gifts of up to £250 per person as they want during the tax year, as long as another exemption has not been used on the same individual.
The standard Inheritance Tax rate is currently set at 40 percent, but is only charged on the part of an estate which is above the threshold.
An estate can pay a reduced rate of 36 percent on certain assets if a person chooses to leave 10 percent or more of the net value to charity in a will.
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