Inheritance Tax planning urged as Rishi Sunak’s tax raid means more to face IHT bills

Martin Lewis gives advice on investing inheritance

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According to a survey carried out by investment manager TIME Investments, nearly one in three (31 percent) of over 55s in the UK have not checked how IHT could impact their assets after death.

This is despite 36 percent of the 1,019 adults polled estimating their estates as being worth more than the current tax-free allowances.

IHT is commonly levied at estates when an individual has died before any assets are handed down to beneficiaries.

Currently, it is charged at 40 percent on the parts of an estate which are valued above the £325,000 threshold.

In the eyes of HMRC, a person’s estate can include their property, certain possessions and even cash.

The tax must be paid by the end of the sixth month after the person’s death or else HMRC will begin adding interest to the estate’s debt.

For the 2020/21 tax year, HMRC received £5.4billion in receipts from IHT levied on the estates of the recently deceased.

This represents an increase of four percent, which is a rise of around £190million from the previous tax year, according to the Government’s own figures.

As part of the 2021 Budget, Chancellor Rishi Sunak confirmed his decision to freeze both the nil-rate and residence nil-rate bands until April 2026.

It is estimated this specific move will raise an additional £985million within the next five years.

Further research by TIME Investments found that more than half (52 percent) of over-55s in the UK do not know what their IHT liability could be.

Only 25 percent of people polled by the firm said they were aware of their potential liability while another 23 percent said they were confident they wouldn’t have any IHT to pay once they die.


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Some 36 percent of people in the age demographic estimate their estate would be worth more than £325,000, which is the current nil-rate band.

A further 20 percent believe that the value of their estate is worth more than £500,000, which is the current allowance with the residence nil-rate band.

Research found that property in the UK continues to count towards a majority of peoples’ assets.

Almost a third (31 percent) of over 55s say their home is worth more than £325,000 compared to 25 percent of the population as a whole.

One of the most alarming findings in the study was that 28 percent of those in the age bracket said they did not even have a will in place.

Experts in tax and inheritance always emphasise the importance of individuals outlining how they want their assets to be handled upon their death and who they want their beneficiaries to be.

Henny Dovland, TIME Investments’ IHT Technical Specialist, works in concert with this train of thought as he explains the impact on the public’s tax bills due to IHT.

Mr Dovland said: “Many over-55s will have estates worth more than the current IHT allowances and it is a good first step to check what impact IHT could have.

“The Budget freeze on IHT allowances until 2026 will inevitably mean more people are likely to face tax bills and it makes sense to start planning as soon as possible.”

For anyone concerned about how IHT will affect their estate and loved ones, the Government has an online calculator on its website which can be used to work out the amount needed to qualify for the tax.

Mr Doyland also shared his top tips for effective intergenerational financial planning:

  • Assess a client’s exposure to IHT and start intergenerational planning early to avoid time restrictions
  • Consider the wider family and younger generations
  • Understand financial planning strategies that can benefit several generations simultaneously
  • Think about including Business Relief as part of IHT planning
  • Use the RNRB to full effect
  • Revisit trusts to assess their effectiveness for today’s families
  • Use pensions as an efficient means of protecting the legacy
  • Ensure clients do not pass on too much too soon and lose control or become dependent
  • Review everyone’s circumstances regularly.

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