22 September 2021 by Helen Beach

Families could be caught out by inheritance tax as HMRC collections rise

Inheritance tax (IHT) could be a ticking time bomb for many families, states Helen Beach, Partner in our Wealth and Estate Planning Team and Regional Director of The Association of Lifetime Lawyers.  Only the other week HM Revenue and Customs revealed IHT collections for April to July 2021 were £500 million higher than the same period last year.

Helen is urging people to ensure they fully understand inheritance tax regulation to ensure families aren’t hit with unexpected bills.  Below, Helen explains this further.

Every individual has a tax-free allowance for IHT known as their Nil Rate Band which currently stands at £325,000. On anything above this, the standard 40% IHT applies. If you’re leaving property to a family member, the Main Residence Nil Rate Band may also apply which is an additional tax-free allowance of £175,000.

In the Spring Budget the Chancellor froze the Main Residence Nil-Rate Band. Usually, it would increase with inflation. This means as property prices rise the tax-free allowance won’t go as far as it used to. More families will be affected by IHT and to a higher degree than before.

A recent survey by The Association of Lifetime Lawyers, the body representing solicitors that specialise in legal support for older people, shows more than half (55%) of its members fear the impact of this will catch families out.

So, what can be done to avoid unnecessary IHT?  The key is to be aware of IHT and start planning early.

It can sound like a daunting task but people who plan ahead will have more options.  In general, a good place to start is to consider who you’d like to benefit from your estate when you die and then think through the implications.

Gifts to charity are completely exempt from IHT and if your estate is liable for IHT and you leave 10% or more of it to charity, then a reduced IHT rate of 36% may be applicable to the rest of your estate. You may want to gift money and property to your beneficiaries before you die. But gifts made while you’re alive could still be liable to IHT, depending on how much they were and when they were given.

Seeking specialist advice is always a good idea as everyone’s circumstances will vary.  For further information or advice, please contact Helen (helenbeach@boltburdon.co.uk) or a member of the Wealth and Estate Planning team.

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