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Inheritance tax is no longer just affecting the wealthy as seven in ten people argue it should be abolished due to its archaic and unfair nature.
HMRC announced that Inheritance Tax (IHT) receipts for April 2023 to June 2023 are £2.0 billion. This is £200 million higher than in the same period a year earlier.
With more and more people getting caught, financial experts have explained certain “complicated rules” that could help people cut their huge bills down.
Consumer research by financial planning experts abrdn found that thousands of people want the death tax gone “because it’s unfair, archaic and not fit for modern life”.
Shona Lowe, a financial expert at abrdn, explained that “Complicated rules” and the range of thresholds, reliefs and allowances can make IHT feel like a daunting and tricky thing to get to grips with.
However, there are a few of the key things she discusses with clients when it comes to navigating the web of thresholds, allowances and reliefs, so they can “plan with confidence”.
The financial expert wanted to clarify some myths when it comes to gifting that people often get confused about.
She said: “We need to do a bit of myth-busting when it comes to making lifetime gifts. One thing that many people wrongly assume is that if they make a gift, the amount of that gift will always reduce the value of their estate for IHT purposes straight away.
“Unfortunately, that’s not always the case, with some gifts taking seven years for the value to fully leave your estate for tax purposes. It all depends on the amount you gift and who it’s to. And it’s not all about gifting.”
There are other options, such as making use of business relief, trusts and insurance that should be considered depending on someone’s individual circumstances.
How best to navigate IHT is entirely dependent on individual circumstances, so if someone is struggling with planning exactly how to pass on their assets and need support, help is available.
Ms Lowe continued: “Another thing to be aware of is the short timeframe that applies for paying IHT if it’s payable on an estate. Generally, IHT has to be paid within six months of the person’s death, unless it relates to a property.
“Any IHT not paid within the required time can be subject to hefty interest from HMRC. The Direct Payment Scheme (DPS), which allows you to ask banks, building societies or National Savings & Investments to pay some or all of the IHT due from the deceased person’s accounts directly to HMRC, can be helpful. Otherwise, it can be paid from money in the deceased’s estate, or from selling assets they own.”
As IHT can cost thousands, Ms Lowe emphasised the importance of having a solid foundation for any IHT plan.
That means accurately calculating the value of your estate, ensuring people have an up-to-date Will and Power of Attorney, that the expressions of wish or nomination for their pensions are in place and that where appropriate, life cover is written in trust.
She added: “The executors (those people looking after administration of the deceased’s estate) can choose to pay the tax on certain assets, such as property, in instalments over ten years.
“But be aware that the outstanding amount of tax will still attract interest. If the asset, such as a house, is sold before all outstanding IHT is paid, the executors should ensure that all instalments (and interest) are settled then.
“There is lots of free guidance available online, or given the sensitivity and uniqueness of passing on personal wealth, it may be wise to seek the help of a financial adviser.
“They can help you get the foundations in place and build an inheritance plan that takes into account all of the options that are appropriate for you, so you can lessen the blow of IHT for your loved ones.”
