Inheritance Tax: IHT receipts rise to £4.6 billion – how to save money on your bill | Personal Finance | Finance
HM Revenue and Customs (HMRC) reports that IHT receipts for April 2021 to December 2021 soared to £4.6billion which is £0.6billion higher than the same period of time in 2020. Last year, the Chancellor Rishi Sunak announced that the nil rate band and residence nil rate band would be frozen for at least two years which is likely the cause of this further rise. Mr Sunak’s aim in doing this was to raise money for the Government following the drastic spending measures during the pandemic.
Julia Rosenbloom, a tax partner at Smith & Williamson, said the year-on-year rise in IHT collections would be “welcomed” by Mr Sunak, adding that the Chancellor “needs every pound he can get at the moment to pay for the government’s ambitious spending commitments”.
She continued: “One of the key factors behind the latest hike in IHT receipts is likely to be the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026, resulting in many families receiving increased IHT bills as more estates are brought into scope on the back of rising property and share prices.
“We are still waiting to hear the confirmed date for the Chancellor’s next Budget, but given it could be just two months away, now is the time that people should be giving careful consideration to their tax planning and making the most of current allowances before any possible changes are introduced.”
The financial expert noted that further action may be taken by Mr Sunak which could affect the overall amount someone would have to pay in inheritance tax.
READ MORE: Clever ways Brits dodging cost-of-living crisis – like cut own hair
She added: “In the next Budget it is quite possible that changes could be made to personal taxes, which may ultimately affect the level of IHT payable by families.
“There are a number of areas of tax planning that may help reduce or eliminate an IHT bill that families could consider, such as investing tax-efficiently and making gifts to family members which could allow more of your assets to be passed onto the next generation.”
Inheritance tax is the levy charged on someone’s estate, which includes their money, possession and properties, after they have passed away.
Every person has a nil rate band allowance of £325,000. If the person providing the property or assets is giving it to either a child or grandchild, HMRC charges an additional allowance called the residence nil rate band, which is £175,000.
DON’T MISS:
Despite being originally targeted at richer households, skyrocketing inflation and property price increase have led to the working-age middle class being affected.
As a result of this, many people look for ways to avoid paying extortionate amounts on their IHT bill after they have died.
Shaun Moore, a tax and financial planning expert at Quilter, noted that further changes would likely see families pay more money after their loved one has passed away.
Mr Moore said: “But there’s more bad news to come for families dealing with the death of a loved one, as probate fees are set to increase from tomorrow.
“It seems you can’t escape soaring prices, even in death, with fees going up by 27 percent for personal applications and 76 percent for those made through a professional. The rate is therefore equalised at £273 for both personal and professional applications.”
In light of this, the tax expert explained what options are available to households looking to save money on their IHT bill.
Notably, Mr Moore called on Britons to take advantage of the allowance and gifts which are on offer as they may save people a sizeable amount in inheritance tax.
He added: “This tax year, you can pass on up to £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner.
“That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1million inheritance free as a couple.
“There are other ways to reduce your inheritance tax exposure, such as gifting to family members.
“Gifts to spouses or civil partners are completely free of IHT and each tax year you can also give away up to £3,000 worth of gifts with your annual exemption, so as a couple you could gift £6,000 a year.
“In addition, there is no limit on excess income – above expenditure – that can be gifted.”
