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Wills & Probate

Why Good Inheritance Tax (IHT) Planning Matters More Than Ever

Inheritance Tax on grieving families has never been higher: a record £7.2 billion this tax year, says the OBR. Learn how to reduce your IHT liability.

Why Good Inheritance Tax (IHT) Planning Matters More Than Ever

Record Levels Of Inheritance Tax

The Inheritance Tax burden on grieving families has never been higher. It is set to be a record £7.2 billion this tax year, forecasts the Office for Budget Responsibility.

HM Revenue & Customs has been working hard to maximise the amount of money it gets from the bereaved. Over the past five years, HMRC has reclaimed more than £700 million in IHT from 2,100 families that thought they’d taken the right steps to minimise their Inheritance Tax liability.

Clearly, they had not. So it’s absolutely essential to use the various IHT thresholds, allowances and exemptions correctly. Fail to do so and you could be in for a nasty shock – at a time when you’re least prepared to deal with it emotionally.

More Families Are Paying Inheritance Tax

Not only is the sum total of Britain’s Inheritance Tax take higher, but more families than ever are now caught within the IHT net. This should not come as any surprise – not when the IHT nil rate band has remained stuck at £325,000 since 2009 (and will do so until at least 2028).

No-one should underestimate the impact of this freezing of the £325,000 nil rate band – not even now the property nil rate band has been increased to £175,000. True, these two nil rate bands are together worth £500,000. And if initially unused then passed from a deceased spouse to the surviving spouse, they can leave estates up to £1 million free from IHT liability.

But over the last 12 months, it is estimated that around 41,000 families are now liable to pay IHT. This compares with 33,000 in the previous tax year – a rise of 24.24%. The Treasury has not been slow to benefit.

And don’t forget, there is worse to come: five more years of the nil rate band frozen at £325,000…and all the while, estates are swelling in value thanks to rising interest rates, stubborn inflation and property prices that were – until recently – rising.

Minimising Your IHT Liability

Wealthy families are so worried by the rising Inheritance Tax take that they’re buying large tracts of farmland, which can be bequeathed without IHT liability.

This land grab is pushing up the price of agricultural acreages. In June 2023, estate agents Strutt & Parker reported a 15% year-on-year rise in arable land prices – pushing them to a record £10,800 per acre. This in turn is making it harder for farmers to buy the land they need.

It’s a classic case of the tax tail wagging the investment dog, as our independent financial adviser friends would put it. But at the time of writing this blog post, the trend showed little sign of abating. And faced with the possible alternative – giving the taxman 40% of one’s estate – why would it?

Sadly, not everyone can afford to buy large chunks of the countryside. However, there are plenty of other ways to protecting your estate from IHT…

Reducing Your Inheritance Tax Liability

There is a wide range of ways in which you can pass your wealth and property to your loved ones without having to give 40% to the taxman.

HMRC-approved tax breaks include making the most of your IHT thresholds and a generous array of tax-exempt gifting opportunities. You might even consider marriage: transfers between spouses are IHT-exempt.

Marriage was the method employed by late comedian and national treasure Sir Ken Dodd. Just days before he died, Sir Ken wed his long-time partner Lady Anne – denying the taxman a slice of his estate.

But before attempting IHT minimisation, there are some important things to bear in mind…

Plan ahead – you won’t be able to accomplish all this on your deathbed. Ideally, you need to be thinking years ahead so you can make the most of HMRC’s tax breaks over a decent period of time. They all add up so the time to start thinking about it is now.

Use tax breaks that best fit your family circumstances. Do not attempt anything that is likely to cause a family row or result in your will being disputed.

Arguments over wills can be long, bitter and expensive. The example we always quote is Charles Dickens’ Bleak House – in which one such legal wrangle was so costly that in the end there was nothing left to squabble over. Bleak House may be fiction, but the effects of wills disputes are all too real.

And don’t forget those families we highlighted at the top of this blog post…the ones who tried to cut their IHT liability but got it wrong and ended up with unexpected tax bills.

So always get expert legal advice from a solicitor specialising in wills and probate before attempting any IHT minimisation strategy. After all, your family’s financial future may be at stake.

Further Reading On Wills And Probate

  • When Should I Make Or Review A Will? 13 Key Trigger Points. Read more…
  • Capital Gains Tax Changes, Inheritance Tax Issues And Probate. Read more…
  • Do All Wills Have To Go Through Probate? Read more…
  • Will My Partner Automatically Inherit My Estate When I Die? Read more…
  • Leaving A Legacy To Charity. Read more…
  • How Can A STEP Wills And Probate Solicitor Help Me? Read more…

Get Expert Legal Advice On Inheritance Tax Planning

For more information about wills, probate and Inheritance Tax planning, contact Coles Miller Associate Solicitor Kerry Hay.

Kerry is a member of the Society of Trust and Estate Practitioners (STEP) in recognition of her extensive legal expertise in wills and probate matters. She is also accredited to Solicitors for the Elderly. Kerry is based at our Poole town centre head office.

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