Estate planning – take control

Inheritance Tax (IHT) is once again in the spotlight following the Chancellor’s decision to freeze IHT thresholds for a further two years until April 2028. Extending the frozen thresholds, together with rising house prices and soaring inflation mean that more estates are likely to be affected. 

IHT receipts on an upwards trend  

The latest IHT figures released in October make interesting reading. Total HM Revenue and Customs (HMRC) receipts for April 2022 to September 2022 were £3.5bn, £0.4bn higher than in the same period last year. 

Not just a tax on the very wealthy  

IHT is a tax payable on all your assets when you die and potentially on some gifts you make during your lifetime. If the estate is liable for IHT, it is usually payable at 40%. These days, you don’t have to be hugely wealthy to be affected by IHT – the hated tax can cost your estate thousands of pounds when you die. 

A reminder of the thresholds 

An individual’s current threshold, or nil-rate band, is £325,000. A couple (married or civil partners) has £650,000. Any unused nil-rate band can be passed to the surviving spouse or civil partner on death. 

In 2017 the government introduced an additional nil-rate band when a residence is passed on death to a direct descendant. The main residence nil-rate band is £175,000 and when added to the existing threshold of £325,000 could potentially give an overall allowance for individuals of £500,000. 

To reduce the amount of IHT payable, many families consider giving assets away during their lifetime. Some gifts will be automatically free from IHT; for example, £3,000 each financial year, certain wedding gifts and gifts to charities. 

Getting the right balance between gifting money during your lifetime and ensuring you have enough for your future years requires careful planning. Expert planning can legitimately mitigate IHT, meaning you can pass on assets to your family as you’d intended. 

The value of investments and income from them may go down. You may not get back the original amount invested. A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. Inheritance Tax Planning is not regulated by the Financial Conduct Authority