IHT receipts rise by £1bn year-on-year

“The latest year-on-year rise in IHT receipts provides a reminder of how this lucrative form of revenue has become well-established as a gift that keeps on giving for the Treasury. Although there has been speculation that IHT could be cut by the government as a General Election manifesto pledge, the outlook for this tax is far from certain. In the short-term, families would be prudent to give careful thought to their tax planning to ensure they don’t pay more tax than they need to.

“More families are expected to be caught by the IHT net given the inflationary growth of asset values coupled with the fact that the nil rate band remains frozen at £325,000 until at least April 2028. Indeed, forecasts published by the Office of Budget Responsibility on the same day as the Chancellor’s last Budget now predict that between 2022/23 and 2027/28 the Treasury will collect £45bn in IHT receipts, a rise from the £42.1bn estimate released last November.

“I’m currently seeing a lot of interest from clients wanting to pass wealth to the next generation in a bid to mitigate the impact of IHT. One option is gifting. Gifts you make to other individuals are generally not subject to IHT unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, and this will not be subject to IHT even if you do die within seven years.

“However, many people I speak with also have concerns around control and protection when passing on wealth to the next generation, so I am increasingly seeing them consider tools such as Family Investment Companies, Offshore Bonds and Trusts, where this fits with the wider plans and motivations of the family. Inheritance Tax needs to be carefully thought through and planned, especially where assets such as company shares, property and pensions are involved.”