IHT is often referred to as the voluntary TAX as, with relatively simple planning it can be significantly reduced or avoided altogether. For those that have not planned please note the following:
Inheritance tax receipts have reached record levels under the current system, as HM Revenue and Customs gathered £4.6bn during 2015/16.Receipts were 22 per cent higher than in the previous year and nearly £1bn higher than the previous peak in 2007/08. In its commentary on the figures HMRC said: “Without adjusting for inflation, this is the highest that IHT receipts have been since the current inheritance tax system was introduced in March 1986.
Death and taxes are considered to be two of life’s certainties but in this case IHT can be considerably reduced or avoided particularly if your home and other assets are likely to be worth more than £1million by 2020 action should be urgently considered. Judicious use of Trusts, Pension Funds, and Business Property relief could form part of your armour shielding tax fully after 7 years in the former and after just two years in the latter and instantly for pension funds. Where trusts are used it is possible to reserve an income for life and once the trust is established capital growth is outside your estate immediately and in any event will be reduced by 20% in each of the years 4-7. Your spouse may be included as a beneficiary via trusts and correctly worded wills.
For example one of our clients has saved a total of £349,922 in potential IHT liability to date and a further saving of £53,000 will be available in November 2016 in addition to £43,346 in a year’s time assuming no further capital growth as the higher her value the bigger the IHT savings. This is based on the current value of her capital invested with us amassed over many years. In the meantime, she enjoys withdrawals for life of £45,500 in addition to dividends she also has access to capital of £240,894 as of 7th August 2016. When her husband sadly died some years ago she asked us to reduce further the IHT liability by improving on the existing mitigating plans. Her beneficiaries will therefore now be hundreds of thousands of pounds considerably better off as a result of planning and further investment growth is completely outside of the taxman’s grasp.