Here’s some current facts regarding Inheritance Tax:
1. Each individual can leave £325,000 (the “Nil Rate Band”) to their chosen beneficiaries on death without paying any Inheritance Tax, but above that figure assets may be taxed at the flat rate of 40%.
2. Each individual with a residence and direct descendants can leave a further £125,000 (the “Residence Nil Rate Band”) to those direct descendants on death without paying any Inheritance Tax on that additional amount.
3. Appropriate use of Inheritance Tax exemptions and reliefs – such as the spouse exemption or Business Property Relief – mean that those with assets far in excess of the combined Nil Rate Band and Residence Nil Rate Band can avoid paying any Inheritance Tax in their estate.
4. Inheritance Tax raises just 77p of every £100 of taxation in the UK, and affects only 4% of estates, yet is widely viewed as unpopular.
5. The combined total of UK inheritances is calculated to be more than £100bn a year, a figure that is expected to double by 2040 with an obvious impact on Inheritance Tax receipts for the Government.
…but is significant change on the way?
The Office of Tax Simplification has launched a review of Inheritance Tax in order to consider the options for reform. The Resolution Foundation – a previous winner of the Social Think Tank of the Year award – has additionally stated that the current arrangement with Inheritance Tax is failing and should be overhauled. They propose tiered rates of Inheritance Tax which would be lower than the current 40% flat rate yet increase revenues for the Government. This can only mean more estates becoming subject to Inheritance Tax.
Karl Dembicki, Private Client Partner at Buckles Solicitors LLP, suggests that “Proposed changes to the law and social commentary on the fairness of taxation is a far cry from an actual change in the law, and so it is still vitally important for those who have a potential Inheritance Tax liability to take action now to ensure their estate does not pay it.”