The number of families in the UK paying inheritance tax is at a 35 year high.
Approximately 40,100 families will have to pay tax on inheritance this tax year and the number could rise to 45,100 in the 2016-2017 tax year. This is almost 3 times as many as it was just 6 years ago. Increasing house prices are pushing inheritances above the tax threshold, while the threshold itself remains static. The good news is that this tax allowance will be increased as of April 2017.
This revision means that thousands of families will be placed outside of the inheritance tax (IHT) bracket. The Main Residence Nil-Rate Band applies when a family home is inherited upon death and will be introduced in April 2017 at £100,000 and will eventually increase to 175,000 in 2020. The allowance will be transferable between spouses (as is the existing allowance) and will allow partners to pass on a home worth £1 million without incurring any tax. We go into this in more detail here.
Leaving an Inheritance
Research from a leading life insurance provider has found that two thirds of pensioners expect to leave a financial inheritance, with the average sum being passed on standing at over £100,000. The Office for Budget Responsibility also predicts that within three years, around 10 percent of us will face an IHT bill on death. There are measures you can take in advance however, which could reduce your IHT bill or even mean that you avoid one completely.
Paying Less Tax
The Express lists some of the ways to reduce the amount of tax you pay on inheritance. Giving gifts of up to £3,000 per tax year (or £6,000 as a couple) is free from tax, and can be planned over a number of years. Giving 10% of your estate to charity reduces the rate of IHT to 36% (from 40%) on certain assets too.
Planning your estate can be stressful, and with the amount of legislation surrounding wills and taxation, the process can be confusing. If you would like more information on planning your estate, please get in touch. Take a look at our will service here.