Inheritance tax: Graham Southorn explains how trusts can help
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New data published today by the HMRC showed that inheritance tax (IHT) receipts for April to August 2022 were £2.9billion, which is £0.3billion higher than the same period a year earlier. There was a previous spike in receipts from October to November 2020, March to August 2021 and in March 2022.
Analysis on the HMRC website said these previous increases were thought to be due to higher volumes of wealth transfer during the COVID-19 pandemic.
Other reasons included the rises in asset values and the Government’s March 2021 decision to maintain the IHT tax-free thresholds.
Julia Rosenbloom, tax partner at Evelyn Partners, said: “This latest reported year-on-year rise for IHT receipts will be welcomed by the Treasury given it is under pressure to pay for Liz Truss’s pledges to reverse the recent National Insurance increase and the scheduled corporation taxes increases, as well as fund the energy plan announced earlier this month.
“While the outlook for IHT is uncertain, more families are already being pushed into its scope given frozen allowances and rising house prices – even before any possible changes are made by the new Truss administration.”
Inheritance tax applies to any inherited assets above the total value of £325,000 for an individual. It may be possible to increase the threshold to up to £1million in total.
Ms Rosenbloom said: “The nil rate band and residence nil rate band which have been frozen until at least April 2026 are pushing IHT receipts upwards, so people should give careful thought to their tax planning to help minimise the chances of being hit by a hefty IHT bill.
“Families should regularly review their tax planning and take a close look at the allowances available to them to ensure they don’t end up paying more tax than they need to.
“By considering tax planning strategies such as making gifts to family members or investing tax-efficiently there are a number of legitimate ways families may be able to reduce or eliminate their IHT bills.”
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Each year an individual can gift up to £3,000 and this allowance can be carried forward one tax year.
People can also give away money and reduce their estate by making any number of small gifts, up to £250.
Gifts between spouses or for the maintenance of children, ex-spouses or dependent relatives are also exempt from IHT.
Another option is to give away money to someone who is getting, which can be up to £5,000 to a child.
Britons can also give away £2,500 to a grandchild or great-grandchild who is tying the knot, or £1,000 to anyone else who is getting married.
Lifetime gifts can be possibly exempt from an estate for IHT purposes, but only if the person lives seven years or longer after making it.
Experts at Wealth Club encouraged people to make a will to make sure their loved ones pay the correct amount of tax on their assets.
IHT receipts hit £2.4billion in the three months to July 2022, a sharp increase of £300million compared to the same period last year.
This is a sharp increase of £300million over the same period of time from the year before which suggests more households.
Alex Davies, founder and CEO of Wealth Club, said previously that ministers are unlikely to reduce the tax.
He said: “Cutting inheritance tax will do nothing to ease the cost of living crisis engulfing the country, and it’s a real cash cow for the Treasury too.
“IHT generates around £800million in tax revenue each month, a very meaningful sum at a time when 29 million households are being given £400 each to offset energy bills.”
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