Inheritance tax receipts data has shown the tax take for the Treasury has soared to record levels. Between April 2022 and February 2023, inheritance tax receipts were a record £6.4billion.
Commenting on the latest data, Andrew Tully, technical director at Canada Life, said: “Inheritance tax revenue has already broken last year’s record of £6.1billion.
“The receipts show IHT is up by 16 percent, year on year. If we continue on this upward trajectory then it will surpass last year’s intake by more than 10 percent.
“The Office for Budget Responsibility updated their forecasts for future IHT receipts for last week’s Budget, with it now expecting IHT to raise £8.4billion in 2027/28.
“This is well up from the £7.8billion it forecast only a few months ago in November.
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“Inheritance tax continues to be a profitable pot of money for the Treasury, but if you plan far enough in advance, there are ways to reduce it.”
But what are the key methods of reducing one’s inheritance tax bill?
Gifts
Gifts include money, household and personal goods, a house, land or buildings, stocks and shares on the London Stock Exchange, and unlisted shares held for less than two years before a person’s death.
There are allowances people can use to give tax-free gifts each year, which could be used to reduce an IHT bill.
People can give away a total of £3,000 worth of gifts each tax year without these being added to the value of their estate.
Gifts for weddings and civil partnerships are as follows:
- Up to £5,000 for a child
- Up to £2,500 for a grandchild or great-grandchild
- Up to £1,000 for any other person.
Mark Collins, head of tax at Handlesbanken Wealth and Asset Management, also urged people to look into other gifts.
He added: “Many exemptions from inheritance tax are frequently overlooked.
“This includes the small gifts exemption of £250 to as many people as you like, and gifts made out of surplus income to name but a few.
“Ultimately, estate planning is a marathon not a sprint, with gifting and other measures undertaken over a period of time as your needs and objectives change.”
Pensions
Mr Tully explained passing on a pension as part of the estate is a “very tax efficient” course of action.
Pension pots are not subject to inheritance tax when a person dies, so they could be used to reduce or even eliminate an IHT bill.
People could move taxable savings and investments into their pension by making extra contributions to their retirement fund.
Pensions also benefit from tax relief, providing this sum with an extra boost.
In addition, Chancellor Jeremy Hunt hiked pension allowances in his spring Budget, providing Britons with more breathing space for contributions.
Trusts
The Government-backed website MoneyHelper explains trusts could be useful to “cut your inheritance tax”.
When people place money or part of their estate into a trust, as long as certain conditions are met, the things no longer belong to them.
This means when a person dies, the value is not normally counted when the inheritance tax bill is calculated. Instead, the cash, investments or property belong to the trust and end up exempt.
Trusts are usually managed by trustees, and MoneyHelper states these people have a “legal duty” to manage and look after the assets for the person who will benefit in the end – for example, children or grandchildren.
While trusts can be useful in slashing an IHT bill, they can be complicated to perfect.
As a result, Britons are encouraged to seek professional advice on the matter, for example, from a solicitor or independent financial adviser.
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