Inheritance tax (IHT) revenues have surged by 11 percent in the past year, with HMRC collecting an additional £620 million. For the first three quarters of the 2024/25 fiscal year, receipts have reached an unprecedented £6.3 billion.
The increase in IHT collections can be attributed to rising asset values, frozen tax thresholds (extended for another two years in the recent Budget), and adjustments to inheritance tax regulations. Experts predict these trends will continue to generate higher revenues for the government.
Stephen Lowe, communications director at Just Group, a retirement specialist, noted: “The December data will likely be seen as a welcome boost to the Treasury’s finances, with inheritance tax delivering record-breaking sums. Changes introduced in the Autumn Budget suggest billions more will be collected by the end of the decade.”
The Office for Budget Responsibility (OBR) estimates that by 2029-30, nearly 10 percent of deaths will result in IHT liabilities—almost double the proportion seen in 2023-24. This highlights the growing financial impact on middle-income families.
Planning Your Estate to Reduce IHT
To mitigate the effects of IHT, experts recommend proper estate planning. Shaun Moore, a tax and financial planning expert at Quilter, stated: “The steady increase in IHT is no accident. With thresholds frozen until 2030, more families are falling within the tax’s reach. Additionally, from April 2027, pensions will be included in taxable estates, further broadening the scope of IHT.”
Moore also pointed out that changes to Agricultural Property Relief and Business Relief could pose challenges for farming families and small business owners, potentially forcing tough decisions about their assets.
Ways to Minimize Your IHT Liability
There are several ways to reduce the inheritance tax burden:
1. Annual Gifting: Individuals can give up to £3,000 per tax year to loved ones without incurring IHT. If unused in the previous year, this allowance can be combined to gift £6,000.
2. Wedding Gifts: Parents can gift £5,000 to their children for weddings, £2,500 to grandchildren or great-grandchildren, and £1,000 to others.
3. Lifetime Gifts: Additional gifts can be made, but if the giver passes away within seven years, these may be subject to IHT on a sliding scale (taper relief).
4. Gifts from Surplus Income: Gifts funded by excess income, rather than capital, are exempt from IHT. However, the giver must demonstrate that these gifts do not affect their standard of living.
Professional financial advice is often invaluable in navigating the complexities of estate planning and ensuring that families can preserve their wealth for future generations.
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