“Inheritance tax is already called the voluntary tax because so much can be avoided or mitigated”

This morning, 23rd May, data released by HMRC showed that receipts from Inheritance Tax (IHT) in April of this year hit £600m, in a single month, which is up a full £100m from April 2022.

After years of house price increases, general inflation, and a freeze on the IHT threshold (the amount at which inheritance tax is paid) have pushed an increasing number of families that would not consider themselves to be wealthy above the threshold for inheritance tax.

The threshold has remained at £325,000 (this is called the nil-rate band [NRB]) per person since 2009. Rishi Sunak announced as Chancellor that this would remain at £325,000 until 2026, and subsequently, Jeremy Hunt, has extended that freeze until 2028. Previously, the IHT threshold went up every year under both Labour and Conservative governments, and had it increased by – even a modest – £25,000 per annum since 2009 it would currently sit at £675,000 per person now, rather than the £325,000 it is. Since 2009 the average house price has gone up by a full 85%. So, add in a general increase in wealth in society as a whole, it isn’t hard to see how and why IHT revenue is on the inextricable march upwards. Since the turn of this century IHT receipts have gone from £2.2bn to £7.09bn in the 2022/23 tax year. It is thus on course to be £8bn in this current financial year.

The current rate of IHT is 40% – that is 40% on everything over £325,000. However, some homeowners can also benefit from a ‘residence nil-rate band’ of up to £175,000 on top of the nil-rate band. This, however, only applies when you pass on your main residence to a direct descendant. The ‘residence nil-rate band’ has been frozen at £175,000 since April 2020.

Alex Davies, CEO and Founder of Wealth Club has said, “…in some circles, inheritance tax is already called the voluntary tax because so much can be avoided or mitigated through government backed investment schemes and careful tax planning. Writing a Will is a good start. If you don’t your assets will be distributed according to intestacy rules and could be subject to IHT which could otherwise be avoided.”

At Prior Knowledge, we advise our clients on Wills and general estate planning to ensure that IHT can legally and properly be mitigated. There are many things that we hear clients doing that will not work for IHT, so proper and timely advice is important. Too often we hear clients have either done the wrong thing; or they want to do the right thing, but have left it too late. Unmarried couples (including those not in civil partnerships), in particular, can be doubly penalised for IHT so they certainly need to have a conversation with us.

With clients up and down the length and breadth of England (although we do have 2 clients in Wales!) we always conduct an initial FREE consultation, in person, at the clients’ home, daytime or evening.

If you are curious about how IHT may impact you and your family please get in contact.