Will your family pay IHT?

There were no changes to Inheritance Tax (IHT) in the recent Budget but a lot more families are going to pay it over the next few years. That’s according to the Office for Budget Responsibility (OBR) which expects twice as many estates to be paying IHT by 2026.

By that date 6.5% of estates will pay the tax up from 3.7% last year which equates to 41,400 families. The Treasury received £6bn in IHT this year but that figure is predicted to rise to £7.6bn by 2026.

The rapid rises in property prices and sadly extra deaths from the pandemic are blamed for the increase. However, another reason is that the IHT threshold has been frozen at £325,000 since 2009 and will remain so until 2026. The Residence Nil Rate Band for the family home will also stay frozen at £175,000 until 2026. In effect IHT receipts will increase by stealth without the government making any changes to the tax at all.

It was also reported recently that IHT has been identified in a recent survey as Britain’s most hated tax. In some respects that is surprising given the relatively small percentage of estates that pay it. However, it probably indicates that the principle of taxing wealth which has in many cases already been taxed seems unfair. Most people would prefer that their wealth went to their family and friends rather than a large chunk being taken by the taxman.

IHT is sometimes referred to as a voluntary tax as there are several ways of reducing or eliminating your exposure not through aggressive tax avoidance but rather sensible tax and financial planning. The important point is to regularly review your IHT position and start your planning early.

This should also include making sure that you have a will. It has been reported that around 60% of British adults do not have a will. That statistic is quite shocking. If you don’t have a will the law decides through the intestacy rules who is entitled to your estate. Unmarried partners are entitled to nothing at all under these rules and are particularly vulnerable where there is no will. Even if you do have a will this should be regularly reviewed to ensure it is up to date. You should also consider having lasting powers of attorney in the event that you are unable to look after your own affairs.

Many people have suggested that IHT is long overdue for a major overhaul and that day may come eventually. In the meantime, check what your position is and if necessary, take reasonable steps to reduce the amount of tax your family will pay.

If you have any questions about your IHT position please speak to your usual Dodd & Co contact or Graham Arnott on 01228 530913.