The latest figures show that the government’s IHT take from April to July 2017 is 20.6% higher than the same four-month period last year.
IHT receipts rose steadily from the mid-1990s until 2007/08 due to increases in the value of tax-liable assets, particularly residential property.
Receipts fell sharply, however, after the introduction of the Transferable Nil Rate Band (TNRB) for deaths after October 2007 and following a decline in the value of residential property in the second half of 2008 and most of 2009 as a result of the global financial crisis.
However, it recovered strongly in 2015/16 due to rising asset values and a higher number of deaths in the final months of 2014/15 compared with the same period in previous years.
Not just the wealthy
Hollowell, head of tax and trustee services at Killik & Co has warned that “the families affected aren’t necessarily the most wealthy”.
She highlighted property values, particularly in the south-east and London, that are in excess of the joint IHT nil rate band.
She told IA: “With the average house in the UK being worth just marginally less than the single NRB of £325,000 ($417,530, €354,556), ordinary families who don’t consider themselves to be well off could end up having to pay the tax. That’s before you even start looking at savings and investments.”
The government has tried to address this with the introduction of the Residence Nil Rate Band (RNRB) but Hollowell has said that “those who benefit the most are married couples who are leaving property to direct descendants”.
“A decline in IHT receipts should be apparent for deaths after 6 April 2017 and people dealing with estates for family members should be aware of all the rules, in particular that the same rules apply as they do to the transferrable nil rate band. Otherwise they could end up paying IHT unnecessarily.”
Lifetime planning
Hollowell stresses that there is planning that can be done during a client’s lifetime to ensure that the amount of IHT liable on their estate is kept as low as possible.
“Many people ignore this which can result in their beneficiaries receiving less than they would if IHT was kept to a minimum.
“Everybody can make annual gifts of up to £3,000. Also, if you receive more income than you need, as long as your standard of living isn’t affected, you may make regular gifts out of income. This is a good way of preventing income capitalising over time and increasing the value of your estate.”
She continued: “Gifts in excess of £3,000 may be made at any time and are treated as potentially exempt transfers (PETs). If you survive for seven years from making the gift then they fall outside your estate completely. If you die before the seven years are up, the rate of IHT will be tapered according to the amount of time that has elapsed between the date of the gift and the date of death.”
A well-publicised example of this is former UK prime minister David Cameron who received a gift of £200,000 from his mother to evenly distribute the inheritance left by his father, Ian Cameron.
As a result, he will avoid a potential £80,000 tax bill if his mother lives until she is 84.
