South East pays more IHT than the rest of the UK
Half of all inheritance tax (IHT) paid in the UK stems from London and the south east, analysis reveals.
In the 2010/11 tax year - when the existing £325,000 threshold first came in - £1.3 billion was raised from the two regions compared to a total UK haul of £2.6 billion, despite the south-east only accounting for 42% of liable estates.
IHT is charged at 40% on the value of your estate that exceeds £325,000.
Across the UK, 15,600 estates had to pay IHT, with an average bill of £166,000, according to Prudential.
In Wales, the average bill was 24% less than the UK average at £126,000, and in the north east it was 22% less at £130,000.
In comparison, in the south east of England the figure was nearly 5% higher than the UK average at £174,000, and in London it was a massive 40% higher at £234,000.
Northern Ireland and the north east of England had the fewest estates liable for inheritance tax at just 200, while London had 2,700 charged and the south east 3,800.
Graeme Robb, a tax specialist at Prudential, said: "These figures reveal that a huge amount of inheritance tax is paid by a relatively small number of people. Nevertheless, it is likely that an average bill of more than £160,000 would be unwelcome for any family."
How can you reduce your IHT bill?
If your estate is worth more than £325,000, there are some exemptions your could take advantage of.
- You could gift some money to friends and family. While some gifts take seven years to leave your estate, others are immediately IHT-exempt. These include an annual gift of up to £3,000; as many gifts of up to £250 per person per year as you like; wedding gifts, which can be of up to £5,000 if you're a parent of the bride or groom; and regular payments out of taxed income, providing they don't affect your normal lifestyle.
- Gifts to charities are also exempt. If you leave 10% or more of your estate to charity, the rate of IHT applied to the rest of your estate in excess of the nil-rate band will fall to 36%, down from 40%.
- More complex tax-planning strategies include using a trust, investing in a portfolio of shares listed on the Alternative Investment Market or in an enterprise investment scheme (EIS) or, as a final resort, taking out life insurance to cover a future liability - which, providing you write it in trust, will ensure the money isn't paid into your estate and is available quickly so your family can settle any IHT bill.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Generally thought of as being interchangeable with life assurance, but isn’t. Life insurance insures you for a specific period of time, at a premium fixed by your age, health and the amount the life is insured for. If you die while the policy is in force, the insurance company pays the claim. However, if you survive to the end of the term or cease paying the premiums, the policy is finished and has no remaining value whatsoever as it only has any value if you have a claim. For this reason, life insurance is much cheaper than life assurance (also called whole of life).
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Enterprise Investment Scheme
A scheme set up to encourage investment into small, unquoted trading companies and give investors tax breaks to compensate for taking risk. Because the companies in the scheme are not listed on a stock exchange they often carry a high risk, so the tax relief is intended to offer some compensation. An EIS company cannot be a subsidiary, must trade wholly in the UK, can’t employ more than 50 people and certain activities (including forestry, farming and hotels) preclude companies from offering EIS relief.
Alternative Investment Market
AIM is the London Stock Exchange’s international market for smaller companies. Since its launch in 1995, 2,200 companies have raised almost £24 billion listing on AIM. The market has a more flexible regulatory system than the main market and can offer tax advantages to investors but its constituents are a riskier investment than bigger companies listed on the main market.