Sunak grabs half a billion pounds inheritance tax in April alone – NOW you must fight back

Inheritance tax explained by Interactive Investor expert

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That is £10 million more than in the same month last year, while the total inheritance tax (IHT) take has now DOUBLED in a decade. Tax experts are urging families to intensify their IHT planning as bills will continue to rocket due to Sunak’s five-year tax freeze.

HM Revenue & Customs is expected to pocket an incredible £37 billion in total IHT over the next five years, as Sunak hunts for ways to claw back his Covid support splurge.

One method is to freeze the IHT nil-rate threshold at £325,000 until 2026, a move announced in his Budget last March.

Sunak is not the first chancellor to try to squeeze more out of the nation’s families by using IHT as a stealth tax.

The nil-rate band has been frozen at £325,000 since 2009, but house prices and stock markets have soared since then.

This is dragging more unsuspecting families into paying the hated death tax every year, said Canada Life technical director Andrew Tully.

“IHT growth is largely driven by rising house prices, as residential property makes up the largest share of most estates.”

Inheritance tax was once viewed as a levy on the wealthy but that is changing with the average home now worth £286,079, according to Halifax.

As house prices continue to rise, the average home is edging ever closer to the £325,000 nil-rate band. Soon even more of us will pay IHT at a punitive rate of 40 percent.

Rosie Hooper, chartered financial planner at Quilter, said ordinary families need to fight back against the growing IHT threat.

Married couples can inherit each other’s IHT allowance and may also benefit from the additional £175,000 main residence nil-rate band, which allows them to pass on up to £1 million to direct descendants such as children and grandchildren in total.

Not everyone will benefit, though, Hooper warned. “Six million couples now cohabit and cannot claim these combined allowances.”

As more and more people live together without getting married, the Treasury is likely to be a huge financial beneficiary.

Luckily, there is plenty you can do to reduce your family’s exposure to an inheritance bill. The sooner you take action, the better.

Gifts to spouses or civil partners are completely free of IHT and each tax year you can also give away up to £3,000 to any beneficiary of your choice.

This means couples could gift £6,000 in total, plus another £6,000 if they haven’t used last year’s gift allowance, as that can be carried forward. You can also give unlimited gifts of up to £250 a year to other people.

Parents can also gift £5,000 to children on marriage, £2,500 to a grandchild or great-grandchild who is marrying, and £1,000 to another relative or friend.

Hooper added: “Unfortunately, gifting allowances have failed to keep up with inflation, and the currently soaring inflation rates will do little to help.”

You can make bigger gifts which will be completely IHT free if you survive for another seven years, known as potentially exempt transfers.

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Inheritance tax planning isn’t something that can be looked at once and ticked off your to-do list, said Liz Ritchie, partner at Mazars. “It needs to be reviewed regularly.”

IHT applies to all your assets. “This includes your home, properties, savings and investments, including Isas, your car and any other personal possessions.”

There is one notable exception. “Pensions can be a valuable tool when passing down wealth because they sit outside your estate for IHT purposes.

Another option is to set up a trust or family investment company, which removes wealth and future growth on it from your estate, while allowing you to retain control of the assets. Trusts are complicated so take advice.

Ritchie said making a will is essential. “This ensures your estate goes to who you want and that your wishes are carried out.” 

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