Her Majesty’s Revenue & Customs (HMRC) has released details of how much inheritance tax (IHT) they have taken from the estates of deceased UK individuals and the total last year soared by 22%, to an all-time record level of £4.6 billion.
Since 2009-10, the amount taken in IHT has increased on average by 12% each year and is now at the highest level since IHT was introduced in 1986.
A lot of this increase is due to house prices (8.4% last year, according to the Halifax House Price Index), but also to the fact that the amount someone can leave without IHT being payable has been unchanged since 2009 – and will continue to be frozen until 2021.
Facts about IHT
- It is payable when someone dies and they leave their assets (their ‘estate’) to someone other than their spouse or registered civil partner.
- The first £325,000 of their estate is taxed at 0%.
- If they had a spouse or registered civil partner die before them, their £325,000 might also be carried forward so the first £650,000 of the estate would be taxed at 0%.
- Above those thresholds, everything is taxed at 40%.
For example, a widow leaving £1 million will have £140,000 taken from her estate to pay IHT (based on a £650,000 threshold).
From April 2017, the 0% IHT band could be increased if you have a residential property.
The rules about IHT and how to avoid it are complicated; please ask a professional adviser for guidance on estate planning.