Louise Nelson, in our Wills, Probate Tax & Trusts team, looks at the latest data shared by HM Revenue & Customs (HMRC) and offers a reminder of the importance of lifetime tax planning.
Newly released figures from HMRC show that the amount of Inheritance Tax (IHT) it collected in April and May this year, the first two months of the new financial year, increased by 9.1% year-on-year to £1.2billion.
This could put HMRC on course to raise more this financial year than was forecast. Between April 2022 and February 2023 IHT receipts totalled £7.1billion, up from £5.5 billion in 2021/22.
The Office for Budget Responsibility (OBR) has suggested that IHT will raise £7.2billion this financial year and as much as £8.4billion by 2027/28, as a greater number of estates become liable to pay more IHT.
Whilst property prices and the value of other assets continue to rise, the nil rate band (the value above which IHT becomes payable) has remained unchanged at £325,000 since 2009 and will do so until at least 2026. Despite the introduction of the residence nil rate band from April 2017, (which is available to some estates provided certain conditions are met), more estates are being brought within the scope of Inheritance Tax.
Individuals and their families may also be impacted by Capital Gains Tax (CGT), a tax you pay on the profit made when selling (or ‘disposing of’) something (an ‘asset’) that has increased in value during your ownership (e.g. a second property). The Capital Gains Tax (CGT) allowance was reduced from April 2023 from £12,300 to £6,000 and is further reduced for the tax year 2024 to 2025 to £3,000.
There are a number of tax-free allowances which may be available to an estate, allowing you to pass on a greater share of your estate to loved ones upon your death. If an estate’s value exceeds the relevant allowances, IHT is payable on the balance of the estate at the rate of 40%. There is no tax at all, whatever the value of the estate, on property going to a widow or widower or to a charity. The value of this exempt property is deducted from the value of the whole estate before the tax calculation is done. In this way, gifts to husbands, wives and charities can take an estate out of the tax bracket.
Our specialist Wills, Probate, Tax & Trusts team can provide expert advice on Wills and estate planning, including in relation to trusts and lifetime tax planning.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
