HM Treasury has collected £5bn ($6.7bn, €6bn) in inheritance tax (IHT) receipts in the year ending January 2022 – £700m more than the previous year.
The increase is largely attributed to rising property prices and asset price inflation which have pushed up the value of estates, resulting in higher IHT bills.
Andrew Tully, technical director at Canada Life, said: “No one likes to pay any more tax than they need to and yet with some simple steps you can arrange your financial affairs to be more tax efficient from an IHT perspective.
“These simple steps could include the order in which you access your assets during retirement, gifting, or putting money into trusts. As IHT is a largely discretionary tax, putting your financial affairs in order will ensure your beneficiaries receive your assets in the most tax efficient way possible.
“Seeking regulated financial advice is a critical first step on that journey.”
Give now rather than later
Interestingly, savers are taking steps to mitigate their future IHT bills.
Research by platform Interactive Investor found that a third (31%) of savers with adult children are planning on giving them a “living inheritance” in 2022.
Of those, one-in-five (20%) are set to give £50,000 or more, while on average gifts range between £10,000 to £20,000.
According to the platform’s calculations, this could result in around £12bn being transferred from older investors to their children.
The most common reason for such gifts is to help the younger generation get on the housing ladder due to soaring house prices.
But there could be IHT advantages for joining the ‘Better Now Than Later’ generation.
If the older investor survives the seven-year mark, they will not be bound to pay inheritance tax on their gifts, meaning that they would be able to reduce their IHT liabilities in the future.
Becky O’Connor, head of pensions and savings at Interactive Investor, said: “Even if your adult children don’t need the money right now for anything specifically, it might make sense for you to give now rather than later.
“In which case, setting them up with a stocks and shares Isa or a pension contribution can be a fantastic long-term financial gift, for which they will be thanking you for many years to come.
“It’s important to note, though, that not all people over the age of 60 are awash with cash to give away. Policymakers looking at the difficulties facing younger generations who are trying to accumulate wealth must be careful not to assume that all younger adults are in line for massive windfalls.
“Some look set for a bit of luck, but others continue to plough on with no inheritance or expectation of any. For this group, building up as much as possible by way of investments and pensions on their own will be the best option, albeit a far slower burn.”