Inheritance tax: 11 ways to pay less tax after Britons pay thousands more

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Inheritance tax: Financial advisor provides advice

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New figures out today show more and more people are being caught in the inheritance tax net as receipts increased by £300million compared to the first quarter in 2021. This rise has been driven by frozen tax thresholds and booming property prices, resulting in the average Briton paying £57,000 more according to Wealth Club.

Inheritance tax receipts continue to trend higher than in previous years, hitting £726million in June 2022 – a new monthly record.

HMRC receipts for the first quarter of the 2022 financial year hit £1.8billion – £0.3billion more than the same quarter last year and an extra £0.7billion compared to Q1 2020.

Stephen Lowe, group communications director at retirement specialist Just Group, said frozen tax thresholds and the booming property market were key drivers of growing inheritance tax receipts.

He said: “While only a small proportion of people pay inheritance tax, the amount being paid has more than doubled over the past decade from £752million in Q1 2012 to over £1.5billion Q1 2022.”

The inheritance tax threshold at which people have to start paying IHT will remain frozen until 2026, meaning things are only going to get worse.

Mr Lowe explained: “The Nil Rate Bands – the size of the estate that can be left without paying any IHT – are set to remain frozen until 2026 and so we can expect to see more and more estates become liable for inheritance tax between now and then.

“The Office for Budget Responsibility (OBR) forecasts that as many as 6.5 percent of estates could be liable for inheritance tax by 2026 – nearly double the 3.7 percent that the figures show for the latest financial year.

“The OBR also revised inheritance tax forecasts up by an average of £0.4billion a year compared to October 2021 estimates because of increased mortality as well as higher house prices.”

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He continued: “Residential property is typically the most valuable component of IHT-paying estates and yesterday’s House Price Index revealed that the average UK property has risen by 13 percent in value over the past year so many people could be approaching or surpassing the threshold without realising it.

“We tend to think only properties in London and the South East as being of a sufficient value to attract inheritance tax, but that’s no longer automatically the case.

“The value of homes in the South West, for example, are up by 17 percent year-on-year and those in the East of England and East Midlands are up by 15 percent, adding many tens of thousands to the value of homeowners’ estates.

“It makes good sense for people to keep track of the likely size of their estate and the tax rules that will apply to it.”

However, there are options available to people, such as lifetime mortgages, that can unlock some of the wealth tied up in bricks and mortar.

Mr Lowe added: “These enable people to pass on wealth while they’re still alive and can see the benefits it brings the recipients; it may also help to minimise any inheritance tax on their estates.

“Professional, regulated advice can provide valuable help for people managing their finances in later life, including working out how their property may impact their estate planning.”

Alex Davies, CEO and founder of Wealth Club agreed: “The good news however is that there are still lots of perfectly legitimate and sensible ways to pass on money free on inheritance tax to your heirs and it is for this reason that inheritance tax in some circles is referred to as a ‘voluntary tax’.”

Wealth Club provided 11 tips for saving on inheritance tax:

  • Make a will
  • Use your gift allowances
  • Make larger gifts
  • Leave a legacy – give to charity
  • Use your pension allowance
  • Set up a trust
  • Invest in companies qualifying for Business Property Relief (BPR)
  • Invest in an AIM IHT ISA
  • Back smaller British businesses
  • Invest in commercial forestry
  • Spend it.

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