Rising inheritance tax - take time to review estate planning

New data from HMRC show that in 2022/23 inheritance tax (IHT) payments

hit a new high. The IHT nil rate band was set at £325,000 in April 2009 and has been frozen ever since.

This year’s Budget extended that freeze to April 2028. For the first year of the nil rate band in 2009/10, IHT receipts amounted to around £2.4 billion. Figures recently released for 2022/23 show receipts at just over £7 billion in the fourteenth year of the freeze. IHT has become a tax which now potentially affects many more people, particularly after a surviving spouse or civil partner dies. On the first death there is normally no tax to pay, so it is often the children or grandchildren who experience first-hand the full impact of IHT.

Mitigating the freeze

If you want to limit the Treasury’s share of your estate, the sooner you start planning, the better. Unfortunately, one of the simplest strategies – making substantial lifetime gifts – is often not a practical option. However, there are other routes to lowering the IHT bill on your estate, including:

• Make the most of pensions

  • Although the primary role of pension arrangements is to provide income in retirement, legislative changes have turned pensions into a valuable estate planning tool.

• Use the normal expenditure exemption

  • If you make gifts that are regular, out of normal income and that do not reduce your standard of living, then they are free of IHT.

• Make a will and, if you already have one, keep it up to date

  • The right will can not only help save IHT, but also means that you choose your beneficiaries rather than the arbitrary rules of intestacy.

• Skip a generation

  • By passing money directly to your grandchildren, you could reduce the IHT on your children’s estate. IHT planning is best considered as part of your overall financial planning, rather than in isolation. Professional advice is essential to navigate the complexities of the legislation.

If you’re looking for advice on your estate planning, please don’t hesitate to get in touch and you can find my contact details here.

✢ The Financial Conduct Authority does not regulate tax advice.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate will writing and some forms of estate planning.