Inheritance tax payments top £5 billion in 2018 - and are set to keep rising

30 January 2019

The much-maligned inheritance tax has earned HMRC more than £5 billion in a year for the first time, and is set to keep growing.

Revenues reached £5.2 billion in 2018, up by £400 million on the year before, according to the latest figures from HMRC published on January 22. 

This figure is projected to rise to £6.5 billion for the 2018/19 tax year by financial services provider NFU Mutual. 

Inheritance tax (IHT) is a “growing concern” for many people as soaring property values and other growing wealth have tipped many over the threshold, according to accountancy firm Smith Cooper. 

No inheritance tax is due on the first £325,000 of an estate. The threshold was last changed in 2009 from £312,000. Above this value the tax is charged at 40% of the value of the estate.

This means many will have been tipped into liability through their assets growing by the rate of inflation over time.

The table below shows the growth of IHT income for HMRC since 1980. 

Source: HMRC, 22 January 2019

However, the government has introduced other measures to help individuals, such as the resident nil rate band (RNRB). This applies when a primary property is left to direct descendants and the allowance is worth up to an extra £125,000.

Smith Cooper says HMRC also now deals with tax avoidance schemes much more aggressively, and increased the number of investigations into individual estates.

Catherine Desmond, a partner at Smith Cooper, says: “IHT can be notoriously complex to navigate, meaning some families are disadvantaged if they do not seek reliable and timely advice.

“It is vital that individuals take the necessary precautions to manage their IHT exposure and that they are fully advised and take advantage of all the allowances and reliefs available.

“Forward planning can make the difference between paying a large amount of IHT and potentially paying little or none in some cases.”

Protect against IHT

The residential nil rate band, unlike the main allowance, is due to increase incrementally over the next few years. The band is set to rise to £175,000 by tax year 2020/21. This will allow couples to bequeath a family home up to the value of £1 million without inheritance tax to pay.  

Gifting sums is another way to avoid the duty. This can be either by smaller amounts, £3,000 per year is permitted, or up to £5,000 if your child is getting married. You can theoretically gift any amount of money you like, however you must survive seven years after the gift is given for it to be fully exempt from inheritance tax. There are also other allowances.

For more on how to cut your IHT bill, Moneywise has prepared a guide to cutting your IHT bill.

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