Record Sums of Inheritance Tax Collected
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According to statistics released earlier this year, Her Majesty’s Revenue and Customs (HMRC) collected £4.7 billion in Inheritance Tax in financial year ending 2016.
The main driving force behind this record level of in Inheritance Tax collections is said to be the increasing price of property; with many more estates now falling into the taxable band on the basis of property assets alone. However, with changes on the way regarding main residences and further ways to reduce the potential Inheritance Tax due on an estate on death, this is an important topic to cover.
Here are some facts surrounding Inheritance Tax (IHT), including a summary of the changes on the way, that you may wish to consider speaking to a wills and probate solicitor about.
For the purposes of Inheritance Tax, an ‘estate’ includes any property, savings and other assets including cars and jewellery that they own on their death. IHT is charged on any assets over the threshold at 40% and must be paid out of the estate before the estate can be distributed to beneficiaries.
The basic IHT threshold is currently £325,000. There is a transferable allowance between partners, meaning the first spouse to die can pass their allowance on to their partner, creating a £650,000 allowance on an estate before IHT is due. This allowance only applies to married couples and those in civil partnerships.
As of April 2017, a new allowance that applies to main residences, ie. family homes, is to be introduced. From this date, the value of family homes will be treated differently when calculating the overall estate valuation and an additional allowance applied. This will start at £100,000 in the tax year 2017/18, then rising by £25,000 each year before reaching £175,000 in the tax year 2020/21. As with the main IHT allowance, the main residence allowance will also be transferable between married couples and those in civil partnerships. This means that by April 2020, the total value of an estate that was previously owned by a married couple before death, to include a main property, would need to exceed £1 million before Inheritance Tax would be payable.
Clearly, the above new legislation represents a significant change to the treatment of Inheritance Tax and therefore has the potential to affect IHT planning. In addition to making plans around your main residence, there are also several other ways in which you can reduce your IHT liability, all of which a qualified wills and probate solicitor can help you put into place.
Should you be concerned about Inheritance Tax planning and wish to discuss anything covered in this article with one of our specialist wills and probate solicitors, please get in touch here.