With inheritance tax receipts set to hit £7bn for the very first time, it has never been more important to understand your exposure to IHT says Olivia Meekin.
The Government has this week published its monthly report on tax receipts. Inheritance tax receipts for the period April 2022 to February 2023 currently stand at £6.4 billion – a 17% increase on the same period last year and is expected to top £7 billion for the very first time.
There remains a myth that inheritance tax is solely the preserve of the wealthy. That is simply no longer true. This sharp increase in IHT receipts demonstrates that more and more people are drawn into the inheritance tax net.
IHT thresholds have remained frozen at £325,000 for an individual and up to £650,000 for married couples since 2009. Significant increases in house prices over that period and, more recently, high inflation means more people are exposed to IHT. Inflation remains high and we can expect to see IHT receipts increase further in the next tax year.
It has never been more important to understand your exposure to inheritance tax.
The starting point is your Will. It is still remarkably commonplace for individuals to believe that they do not need a Will because their estate is quite small or that it will automatically pass to their partner.
Dying without a Will, called intestate, will see your estate if it is worth more than £270,000 pass to children and a surviving spouse or civil. It does not, as many assume, pass directly to a spouse. This means the spousal exemption is lost, triggering unexpected inheritance tax demands.
For those with more sizeable estates, preparing or updating a Will presents the ideal opportunity to take stock and consider further inheritance tax planning measures.
Despite IHT being one of the lower grossing taxes, falling way behind stamp duty, tobacco and alcohol duties, it remains highly emotive. The Conservative Party has in its previous election manifestos promised to revisit IHT thresholds yet they remain fixed until 2028. Given this sharp increase it is likely to refocus attention once again on inheritance tax.
It is important to take advice when considering inheritance tax planning and preparing a Will. Bishop & Sewell has an experience team that can help guide you through this complex area of tax.
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The above is accurate as at 22 March 2023. The information above may be subject to change during these ever-changing times. The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.