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Taxing Times on Inheritance

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HM Revenue & Customs (HMRC) has reported a new record high  for Inheritance tax (IHT) receipts in 2017/18 with around £5.2 billion being received, a £400 million year on year increase in the amount received in 2016/17 last tax year, around an 8% increase.  And this despite the introduction last April of the main residence nil rate band which, in certain circumstances allows couples to pass on a family home worth up to £100,000 tax-free in addition to the £650,000 combined nil-rate band available to them.

The last 8 years have seen steady increases in IHT receipts, mainly as a result of rapid rising property prices, especially in London and the South East – which led to the introduction of the residence nil-rate band referred to above. This “residence nil-rate band” will increase each year until 2020, when a couple will be able to bequest a home worth £1m without incurring tax.

But this exemption is restrictive and very complicated, a Freedom of Information request from financial advice firm NFU Mutual showed that as few as one in six estates have used the new exemption. HMRC data obtained via the FOI request show that just over 3,000 taxpaying estates claimed the new residence nil-rate band between April and December 2017. By any standards, this is a very low take up of a theoretically valuable ‘exemption’.  It may be that those estates where the exemption was not claimed were not eligible for the residence nil rate band or it might be that the personal representatives just did not know about it.  This nil rate band does not need to be claimed, it is included automatically, according to HMRC, for all qualifying estates but that only works if HMRC has enough detail through probate to know that it applies.

If you have not had a professional assessment of the potential IHT liability arising on your death and considered methods of mitigation since April 2017, when the residence nil rate band came into force, then we would strongly recommend that you seek advice on this area.

The main nil rate band of £325,000 per person has been frozen since 2009 so even modest growth in property or investment values will serve to increase IHT liabilities.

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