Given that more people seem to be getting caught in the IHT net, we thought it would be a good time to provide an Inheritance Tax update. You may also want to look into some tax planning!
What is Inheritance Tax?
If you want to find out more about how Inheritance Tax works, this blog post gives you a good general introduction.
In a nutshell, though, if an individual’s estate is worth more than £325,000, IHT is payable on anything more than that amount. You can also pass on your £325,000 tax-free allowance to your spouse or civil partner. That means their combined estate only attracts Inheritance Tax when it is worth £650,000 or more.
Can I reduce my IHT bill?
Yes. There are ways of reducing or even eliminating your Inheritance Tax bill. One of the most common methods is by gifting money or assets to children. If done correctly, no tax is payable on the gift as long as you live for 7 years after making it.
We have a more detailed post on IHT and gifts, which may be of interest to you.
Is IHT going to rise?
A while ago, the Chancellor announced that the current IHT thresholds will be frozen until at least 2025/26.
Assuming he sticks to this, there are still ways he can raise extra money from Inheritance Tax. For example, it’s quite possible that he will clamp down on exemptions such as the 7-year gifting rule, or the annual £3,000 exemption. (You can currently give away up to £3,000 per year without this being added to the value of your estate).
It’s also possible that the Chancellor will bump up the 40% IHT rate. However, that would be politically difficult as well as unpopular, so we think this is unlikely.
Why should I start planning for IHT?
There are a number of strong reasons to start IHT planning as soon as possible.
Firstly, because the IHT threshold is remaining static until at least 2025/26, more people will pay Inheritance Tax each year. This is because the value of assets will rise while the threshold stays the same.
Secondly, if the Chancellor does make changes to exemptions such as the 7-year gifting rule, he’s highly unlikely to make them retrospective. What is sensible and legal tax planning today may become impossible in the near future.
Inheritance Tax Update – key advice
We hope this Inheritance Tax update has been useful. If you have been thinking of getting started with IHT planning, now is the time to do it. Get in touch today and we’ll put you in contact with one of our IHT experts. They may be able to help you save a small fortune!
About Ian Henman
London lad Ian joined THP in October 2016 to set up and manage THP’s new legal services department.
Starting at the tender age of 19 Ian spent almost 30 years building his career at Natwest/RBS becoming a business client account manager to many local businesses.
Ian was looking for a new challenge and as THP was searching for someone to gain accreditations and spearhead the legal services department, there was a clear synergy.