South East pays more IHT than the rest of the UK

21 February 2014

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.

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