Inheritance Tax - The Three Certainties
- AuthorBeverley Bowen
Over recent years there have been some quite substantial changes to the allowances regarding inheritance tax, and there is talk of further changes for example in respect to gifts. With the Government considering ways that it can raise additional revenue to assist with decreasing the economic deficit it is possible that it may consider how to increase revenue from all taxes.
The recent changes include the introduction of the transferable nil rate band for married couples and a new allowance that has been introduced called the residence nil rate band (RNRB). In March 2021 the Chancellor froze the nil rate band (NRB) at £325,000 per person and the RNRB, where this will apply, at £175,000.
The Treasury projections are that it expects to net an extra £15 million in 2021/2022, rising to £445 million in 2025/2026. By 5 April 2026, it predicts that HM Revenue & Customs will have collected a total of £985million in extra death duties from estates.
Alongside this news is the fact that the Office for National Statistics has confirmed that the value of the average house has risen by 13.2% on the previous year (at June 2021). This is the highest annual growth rate the UK has seen since November 2004. It is therefore likely that more families are going to be caught with an inheritance tax bill.
It is more important than ever to consider what tax-saving measures can be utilised to allow you to pass on as much of the family wealth to your nearest and dearest. There are some very simple things that you can do:-
- Ensure that you have an up-to-date Will and that this is drafted in a tax-efficient way. It is important to ensure that you do not inadvertently include something in your Will that could mean that the RNRB will not be available to your estate after you pass away.
- Consider what lifetime gifts if any you may be able to utilise. Lifetime giving is not the correct way forward for everyone and it is important that you discuss your individual circumstances with your solicitor before proceeding. It is important that if you are making lifetime gifts that you keep a full and accurate record and that your executors will know where to locate this information when you pass away.
- Where possible ensure that your estate can claim any reliefs such as agricultural property relief and business property relief. Again, it is important to discuss these with your solicitor to ensure that you protect these reliefs if available.
- Have a Lasting Power of Attorney in place. If you lose capacity it means that your attorneys can continue to deal with your financial affairs. Whilst your attorneys cannot necessarily make gifts to reduce your inheritance tax bill without the approval of the Court, they can certainly consider the size of your estate and can make an application to the Court of Protection if appropriate. The Court will consider whether it is in your best interests to agree to the proposal and as part of that they will take into account any wishes you have expressed whilst you have capacity. It will be important therefore to make your attorneys aware of your wishes in respect of lifetime gifts to reduce your IHT bill and also to record those wishes in some format.