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Inheritance tax expert shares ‘greatest threat’ to wealth as HMRC rakes in £700m in April


Inheritance tax receipts hit £700million in April, according to data released by HM Revenue and Customs (HMRC) this morning.

This is £85million higher than in April of the previous tax year, continuing an upward trend over the last two decades.

With such a strong start to the new tax year, experts believe that predictions of inheritance tax receipts exceeding £9.5 billion by the end of the decade are looking increasingly realistic.

For those that are picking up the ‘death tax tab’, Wealth Club calculations suggest the average bill could increase to £243,000 in the 2023/24 tax year, with over 31,000 families having to hand over part of their inheritance to the taxman.

This is a steep 13.3 percent increase from the £214,000 average paid just three years ago and a 15.9 percent rise in the number of estates paying the tax.

Many attribute the increase to soaring house prices and living costs, along with frozen personal allowance thresholds.

The inheritance tax ‘Nil-Rate Band’, which is the amount a person can pass on after death tax-free, has been frozen at £325,000 since 2009. Any value of assets exceeding this amount is then typically taxed at 40 percent.

Nicholas Hyett, investment manager at Wealth Club said: “Contrary to popular belief, inheritance tax doesn’t just affect the super-rich. Frozen tax brackets mean many who would not consider themselves wealthy will find themselves falling into the IHT bracket in future.

“Their standard of living hasn’t changed, indeed inflation means it might have gone backwards, but the Government now considers them to be wealthy enough to face inheritance tax.”

Mr Hyett noted that, while pensions can be passed on to the next generation relatively tax efficiently, “the greatest IHT threat probably comes from where you least expect it: your ISA.”

Mr Hyett explained: “While tax efficient in so many ways, ISAs are not IHT free. So, if you do nothing, up to 40 percent of your long-term savings could end up with the taxman.

“An alternative is to invest in an AIM ISA, a managed portfolio of AIM shares that can be IHT-free after two years. You still get the ISA benefits of tax-free income and growth for as long as you live, but you don’t need to worry about IHT on top.”

Sarah Hollowell, tax and trustee services director at wealth planner Killik & Co pointed out that inheritance tax (IHT) planning “has never been more important”.

She said: “As the first tax receipts of the new tax year show, IHT already rose by £85million on April 2023. It is therefore crucial that families take the time to look at their financial situation and tax liabilities and plan accordingly.

“For some, making use of gifting allowances is certainly something to consider and speaking with an adviser who can suggest the most appropriate route to reduce potential IHT liabilities.”

From trusts and gifts to pensions, people can reduce their inheritance tax liabilities and pass on more wealth to loved ones.

People can generally give a gift of any value to a spouse or partner, or gifts of up to £3,000 to anyone else, in any one year. People can also make regular payments out of their income, as long as it doesn’t impact their standard of living, although there are limitations, and people can read more about those here.

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