Brits are paying more inheritance tax than ever before, according to the latest figures from HMRC.
In the year to March 2019, IHT receipts rose by around £160 million to £5.4 billion.
The increase – which HMRC has attributed to rising asset values – is in spite of the of the residential nil rate band introduced in April 2017.
Currently inheritance tax is paid at a rate of 40% on estates worth more than £325,000. However, the new residential nil rate band (RNRB) provides an additional tax-free allowance when the family home is being passed down to its owner’s children or other direct descendants.
The RNRB stands at £150,000 in the 2019/20 tax year but will rise to £175,000 in April 2020.
Although the latest figures mark a continuation of a consistent and long-term trend of increases, IHT can be legally avoided with the correct planning.
Neil Jones, wealth management and tax specialist at Canada Life says: “Just as consistent is that a lot of these payments are preventable. Death and taxes may be the only two certainties in life, but with careful planning around the former, some of the latter is unnecessary.
"It’s crucial to use any reliefs, exemptions and allowances. Starting any planning early is essential and there’s a range of trusts available that can enable clients to make sure more of their money goes to beneficiaries whilst reducing the amount of tax payable when they die.”
Rachael Griffin, tax and financial planning expert at Quilter agrees but says people simply aren’t aware of the steps they can take to reduce the amount of IHT their loved ones will pay when they die.
“Research for Quilter shows that despite the residence nil rate band being in effect since 2017, just 41% of people are aware of this complicated part of the inheritance tax landscape. Further to this, under half of respondents were aware of other fundamental inheritance tax rules such as the £3,000 gifting limit (46%) or the £325,000 nil-rate-band (43%).
“The very fact that people have to be asked which, of numerous complex allowances are available to them is a terrible sign itself. And it is made worse by the woefully low proportion that are aware of them. Government claims that it has given the public all the tools it needs to navigate this tax system, but it’s as complex as assembling flat pack furniture with instructions written in a foreign language.
“In the modern world families are increasingly becoming more complex and we need a tax regime which functions with this in mind. The RNRB depends on a number of factors, including your marital status and who inherits the family home. These kinds of rules should be rethought so people have the freedom to gift to whoever they want and are not constrained by antiquated societal rules. A simple IHT regime gives people far greater opportunity to best plan their estates and make the most difference to future generations.”
Find out how you can cut your inheritance tax bill with our guide.