Inheritance tax receipts (IHT) hit £4.6billion between April and October as frozen thresholds pushed more estates into paying the controversial charge.
Chancellor Jeremy Hunt is rumoured to be considering an IHT cut in the Autumn Statement this week but the latest HM Revenue and Customs figures show a £500m or 12% annual rise in receipts for the Treasury.
IHT allowances have been frozen at £325,000 until at least 2028, meaning more taxpayers will be pulled into paying IHT as wages and inflation increase, a process also known as fiscal drag.
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“The Treasury will welcome the news that IHT receipts have shown yet another year-on-year increase,” says Laura Hayward, tax partner at Evelyn Partners.
“All eyes are now on whether IHT will get a mention in the chancellor’s Autumn Statement tomorrow.
You don’t have to wait for reforms to reduce your IHT bill though.
How to cut your IHT bill
Hooper says some call IHT a “voluntary tax” due to the number of exemptions available.
Assets can be passed to a spouse tax-free.
If you are leaving assets to other people, up to £175,000 of the family home can be be passed on tax-free to a direct descendant such as a child or grand-child using the main residence nil-rate band.
This is doubled to £350,000 when combined with the allowance of a surviving spouse or civil partner.
On top of this, the surviving spouse would still have the £325,000 standard nil-rate band is available, meaning it is possible to pass on £1 million IHT-free as a couple.
You can also make gifts each tax year of up to £3,000, so as a couple this could be a combined £6,000.
It is also possible to make gifts of unlimited value using potentially exempt transfers, which will be IHT-free after seven years if you haven’t passed away.
Other options include investing in companies that qualify for Business Relief, which is IHT-free after two years or you can put assets into a trust that is free of IHT.
“Seeking professional financial advice can help people manage their tax affairs and make the most of their money, particularly if changes come into play during tomorrow’s Autumn Statement that may complicate current plans,” adds Hooper.
“The rules and restrictions surrounding certain aspects of tax planning can be difficult to navigate, particularly where inheritance tax is concerned, so speaking to a financial planner is key to ensuring you plan effectively and mitigate unnecessary costs.”
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