Lesser-known tricks to ‘look out for’ to slash inheritance tax bills

HMRC raked in a staggering £2billion in inheritance tax (IHT) receipts from April 2023 to June 2023, reflecting a £200million increase from the same period a year earlier.

New data shows the number of families paying IHT increased by 17 percent in the 2020 to 2021 tax year, with average bills hitting £214,000.

Emma Florentin-Lee, partner, chartered accountant and tax adviser at Oury Clark said: “While the rates and thresholds in relation to IHT have been stable for many years and indeed are now frozen until 2027/28, inflation has meant that the value of assets in your estate is likely to have increased, particularly residential property.”

She said that, with thresholds not increasing in line with inflation, more assets are now falling into the inheritance tax net.

The nil-rate band, which is the amount a person can pass on after death tax-free, has been frozen at £325,000 since 2009. If the value of an individual’s property exceeds this, a 40 p.c tax price is utilized to the remaining.

Ms Florentin-Lee added: “Some see [the frozen thresholds] as a sneaky ploy by the Government to increase IHT bills without taxpayers noticing and without the negative headlines of tax rises.”

However, there are methods to scale back the IHT burden and cross on extra to family members, if deliberate successfully. Ms Florentin-Lee informed Express.co.uk one in every of her “go-to” suggestions for relieving inheritance tax (IHT) is gifting from surplus revenue.

Ms Florentin-Lee defined: “As you likely know, normally gifts are subject to the seven-year rule whereby they only fall out of IHT after seven years.

“But regular gifts out of your surplus income fall entirely outside the scope of inheritance tax from the date the gift is made.”

However, she famous the “critical” level right here is that the individual making these presents must have adequate revenue every tax yr after taxes, residing prices, etcetera.

Ms Florentin-Lee stated: “Any spare income can be given as gifts to individuals and, as long as these gifts are expected to be regular, the gifts fall within this exemption.”

Business property reduction can be a “valuable relief” from inheritance tax, in response to Ms Florentin-Lee.

She stated: “Look out for any reliefs that can be applied to someone’s assets upon death, such as business property relief.

“There are various investment funds which invest solely in companies that qualify for business property relief, therefore your investment in these investment schemes would fall outside the scope of inheritance tax after two years of ownership.”

Ms Florentin-Lee famous that, though the speed of IHT is 40 p.c, the common price paid within the 2020/21 tax yr was 13 p.c because of the “sheer number” of allowances and reliefs accessible. Therefore, those that construction their affairs “efficiently” and benefit from the varied reliefs accessible will be capable of scale back the IHT burden.

Additionally, if an property has not been left in probably the most tax-efficient method, Ms Florentin-Lee stated it’s potential to “vary” a will for as much as two years after the date of dying. According to the tax skilled, this is able to permit a brand new will to be put instead, which might be drawn as much as benefit from the accessible tax efficiencies.

She added: “If any IHT is due upon an individual’s death, the executors – those appointed to sort out the estate – have six months from the date of death to pay the IHT bill. This isn’t very long, especially at what is likely to be a very challenging time.

“HMRC also charges interest on late IHT payments, which is now at a rate of 7.5 percent, only adding to the inheritance tax burden.

“There are also exemptions for some gifts, beyond those made out of surplus income, like the £3,000 annual exemption which can be carried forward a year if not used. As well as special allowances for gifts made to someone in the event of their marriage.”

Find out extra about further exemptions and environment friendly tax ideas in Express.co.uk’s inheritance tax guide.