Inheritance Tax (IHT) was originally introduced to target only the wealthiest in the land. But rising property values throughout much of the UK have meant that many more families are being inadvertently dragged into the net. In 2017-18, HMRC collected a record £5.2bn from IHT, a rise of 60% over the past five years. HMRC’s tax haul has doubled in less than a decade.
Where you live can make a huge difference to the amount HMRC will we expect to claim from an estate. There are no prizes for guessing that those living in London stand to be the hardest hit, but a recent study of 2015/16 IHT payments by insurers Direct Line found that Guildford in Surrey is the area where most estates were liable for IHT. In Guildford, 658 estates paid average IHT bills of £231,000. By contrast, the lowest average IHT bills were paid in Dartford, Kent (£97,175) followed by Dudley in the West Midlands (£102,706).
Is it right, or fair, that where you were born and raised is the deciding factor? After all, if you inherit assets it doesn’t mean you have the money to pay the bill.
All taxes are unpopular, but, because of its complexity and the anomalies that can arise, there is none more so than IHT. Some influential bodies, like the Resolution Foundation, have called for the tax to be abolished altogether to be replaced by a broader levy on gifts and bequests. Others have asked for the complex system of thresholds to be simplified so that everyone knows at least where they stand. Chancellor Philip Hammond has called for a review of IHT, but no changes were forthcoming in his recent Budget statement. We must therefore wait to hear our fate.
In the meantime, there are legitimate ways to mitigate IHT and, of paramount importance is to seek advice and to seek it early – the timing of passing on assets to the next generations can make a huge difference to IHT liability.
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