Inheritance tax bills have reached their highest ever level, according to a recent article on Which? news.
In the last 12 months, the HMRC has collected £5.1 billion in inheritance tax (IHT) – the first time the tax bill has broken the £5bn barrier in a single year. Compared to the last 12 months, the HMRC has collected 19.1 percent more IHT from people’s estates.
Which? proposes a theory for why this has happened. The IHT allowance has been frozen at £325,000 for a few years now, but property prices and the value of other assets have increased since the financial crisis of 2008. The new principal residence nil band came into effect in April of this year, allowing people an additional £100,000 IHT allowance if their property is left to a descendant. This should lead to lower IHT bills for many, although it may take a little time to filter through.
Which suggests various legal ways to cut your IHT bill, mainly by giving away your assets while still alive, so they do not form part of your estate when you die. Such things might include gifts of up to £3,000 per tax year. Small donations of £250 per year are also free of IHT, as long as the beneficiary didn’t get the £3,000 too. Wedding gifts of up to £5,000 for each of your children are permitted, £2,500 for grandchildren and £1,000 for anyone else. Gifts to charity are always free of inheritance tax. Potentially exempt transfers are free from IHT so long as the giver remains alive for seven years afterwards. If he or she doesn’t, the recipient will need to pay tax on the transfer.
Other taxes have risen at the same time, Which reports. The insurance premium tax grew the fastest, with the HMRC collecting 31.5 percent more in the last year than the 12 months before. This is mainly because the government has increased taxes on insurance premiums three times in the last two years. The government has collected £4.8 billion on this tax.
Stamp duty charged on shares has also increased, thanks to strong investment markets. Investors paid £3.8 billion on this tax last year. Capital gains taxes also rose – rising some 23 percent to £8.7 billion. This tax applies to people selling second properties, shares or other assets.
On most assets, people will pay 10 percent as a basic-rate taxpayer, or 20 percent as a higher – or additional-rate taxpayer. Property rates, though, remain at 18 percent and 28 percent respectively.