More families are paying inheritance tax than ever

Record number of families are paying a record amount of inheritance tax (IHT), according to HMRC's 2016-17 'Inheritance Tax Statistics' Report This is despite IHT being a tax that was originally aimed at only the very wealthy.

Here’s five things you should know about IHT.

1. Get your head around the basics

Your IHT liability is based on the value of your estate. This includes your property, savings and possessions. If the total value of these is above the threshold, then part of your estate may be taxed at a rate of 40 per cent. The threshold currently stands at £325,000, and £650,000 for married couples and civil partners. There’s also the residence nil rate band – this could let you pass on your home to a direct descendent tax free. For 2019-20 this allowance stands at £150,000 per person, and it is set to rise to £175,000 for 2020-21.

2. The number of families affected by IHT has been rising for the last decade

The HMRC report also stated that the number of estates found liable for inheritance tax reached a record high in 2016-17. The figures reported that 28,100 estates had an IHT bill to pay. An increase of 3,600 on the previous year. On top of this, the amount the government has collected in IHT receipts has risen yearon-year in the last nine years – with the total funds for 2018-19 reaching record levels, increasing by three per cent (£166 million) to £5.4 billion.

3. Don’t get caught out by rising property prices

The past decade of growing house prices has led to an increase in the number of families liable for IHT. According to Land Registry, in January 1980, the average price of a house in the UK cost £19,273. In January 2019 this stood at just under £228,396, meaning when an individual passes away they may be leaving behind property valued above the IHT threshold. Since 2009-10 the total capital value of estates has swollen by around £15 billion, to total £80.1 billion for 2016-17 – with four fifths of this increase resulting from the surge in residential property prices, according to HMRC’s findings.

4. Is it time for an overhaul of the rules?

It’s no surprise that the government is continuing to collect record sums. The main thresholds have been frozen at this amount since 2009, meaning it hasn’t been adjusted in line with rising inflation. Even with the introduction of the residence nil rate band in 2016, annual revenue is forecasted to keep rising. What’s more some of the exemptions and rules on gifting money haven’t changed for some time. And as things stand, without the right advice the world of inheritance tax could prove difficult to navigate.

5. It can pay off to seek professional advice

Whilst the existing exemptions available are complicated, they can help. In their report HMRC revealed how transfers between spouses and civil partners avoided £9.7 billion worth of assets being assessed for IHT across 2017-18. So, as you get older it’s vital to consider the impact IHT could have on your estate and your family. You should then start to think about the next steps you could take to help you loved ones avoid facing an unexpected IHT bill. That’s why Mail Finance has partnered with Skipton Building Society. With over 30 years’ experience, they’re here to help as many Mail readers as they can with their financial plans – and this includes helping you to plan a legacy for your loved ones through no pressure and tailored advice. It’s important to be aware that some solutions may put your capital at risk, so you may get back less than you originally invested. The Financial Conduct Authority doesn’t regulate some areas of inheritance tax planning. Thresholds depend on your individual circumstances and prevailing legislation, both of which may change in future.