HM Revenue & Customs has announced that in the financial year 2021-22, inheritance tax (“IHT”) receipts rose by 14% to £6.1 billion, with an increase of around £729 million to the highest level on record.
In what is the second-largest increase seen by HMRC in IHT receipts over a financial year, beaten only by a rise of 22% in 2015-16, what can the increase be attributed to?
Comments by HMRC indicate that the latest 14% increase is likely a result of Covid-19, with more wealth transfers and deaths of people whose estates were subject to IHT, the continual increase in values of assets such as homes and property, and the IHT nil rate band threshold remaining at 2020/21 levels for longer. There may also have been delays in processing IHT during the early stages of the pandemic, resulting in delayed payments.
With the threshold remaining stable but asset values rising, more estates are being valued above £325,000 resulting in taxable value. Around 23,000 UK deaths per year are now resulting in an IHT charge, and in many cases this may be unexpected.
What is Inheritance Tax and how is it charged?
Inheritance tax is the tax charged on the estate of someone who’s died, including the value of their property, money and possessions.
An estate will be charged Inheritance Tax where it is valued above £325,000. Below £325,000, or if the estate value above £325,000 is left to a spouse, civil partner, charity or community amateur sports organisation, there’s not usually any tax to pay. Even if the estate value is below £325,000, you may need to report the estate to HMRC.
What is the Inheritance Tax rate?
The standard rate of Inheritance Tax is 40%, and is charged on the value of your estate over the £325,000 threshold.
How can Inheritance Tax liability be managed?
Inheritance Tax liability can be lessened through good estate planning, such as by how a will is drafted, life insurance policies, tax efficient trusts and gift allowances.
IHT exemptions are also allowed in some circumstances including where gifts are made, but be aware of the effects of gifts as exemptions may not always be made.
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