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.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
“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.”
-
Is it time to ride the recovery in emerging markets?Interview What's the outlook for emerging markets? Gustavo Medeiros, head of research at Ashmore Group, gives his analysis and reviews progress in developing economies
-
Could the Enterprise Investment Scheme cut your tax bill?The Enterprise Investment Scheme is tax-efficient and potentially lucrative. Taking a chance on the scheme could trim your family’s IHT bill, says David Prosser
-
What are wealth taxes and would they work in Britain?The Treasury is short of cash and mulling over how it can get its hands on more money to plug the gap. Could wealth taxes do the trick?
-
When is the self-assessment tax return deadline?If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
-
Child Benefit: how it works, eligibility criteria and how to claimChild Benefit is worth hundreds of pounds per year and claiming it can help build up your state pension entitlement. We look at who is eligible and how to get the payment
-
HMRC warning after scammers target 170k taxpayers – how to stay protectedScammers are using increasingly sophisticated methods to trick people into sharing personal details or paying for fake self assessment tax refunds
-
HMRC rewarded tax informants with £850,000 as record fraud tip-offs sent to taxman last yearThe taxman was tipped off about 164,670 cases of alleged fraud last year, but total rewards given to snoops fell in the 2024/5 tax year.
-
HMRC savings tax crackdown: More workers to pay tax directly from their wagesBanks and building societies will be required to obtain National Insurance numbers from savers to make it easier for HMRC to tax those who breach their personal savings allowance
-
Inheritance tax investigations catch out 1200 more families in HMRC crackdownWhere there is a suspicion inheritance tax has been underpaid, HMRC has extensive powers to check the deceased individual’s financial affairs and chase what is owed. Will you pay more?
-
Do you still have to file a tax return if you don’t owe any tax?Even if you do not owe the taxman any money, failure to complete and submit your tax return could result in a penalty costing you up to £1,600.
