Whilst the Treasury may have benefitted from record inheritance tax (IHT) receipts of £5.2bn last year, a number of new surveys (including from NFU Mutual & Quilter) reveal that most people are unaware of how the IHT system works, or how it could help them pass their wealth to their beneficiaries.
So what did the surveys reveal?:
- 37% of those asked were aware of inheritance tax rules.
- 40% said they had a basic understanding about IHT rules around gifting or the nil rate band.
- 60% felt the rules were important as to how it could help them pass their wealth on.
It's clear that IHT is still a very grey area, highlighting the disconnect between the information that is readily available and understanding the practical implications for individuals and their families. From many conversations about this subject, our clients would certainly welcome it being simplified.
Inheritance Tax - a quick guide:
- Inheritance tax must be paid on an estate – made up of property, money and other possessions – once someone has died.
- The standard rate of inheritance tax is 40% and this must be paid on estates worth over £325,000.
- If your estate was worth £500,000, then inheritance tax of 40% would apply to £175,000.
Amongst a raft of recent recommendations, the House of Lords raised the question as to why and how assets should be taxed at death, or on transfer to the next generation. The report suggested options such as a capital receipts tax payable on income received by beneficiaries, or one very interesting idea is exempting certain assets from IHT if earmarked for a family member trying to get on the property ladder.
Whether any of these ideas come to fruition remains to be seen, but there are still ways in which IHT can currently benefit you. The £3,000 a year annual gift allowance offers you the opportunity to give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for IHT purposes.
Making a gift to your family and friends while you are alive can be a really good way to reduce the value of your estate for Inheritance Tax purposes, and benefit your loved ones immediately. If you would like more tips and advice regarding the above, we have more information via this link, which we hope you find really useful.