Reducing your exposure to Inheritance Tax
The Office for Budget Responsibility (OBR) has recently announced that the number of families being subject to inheritance tax (IHT) on death has reached a 35 year high as rises in house prices, particularly in London and the South East, have pushed Estates over the IHT nil rate band which has remained static at £325,000 since 2009 and will remain so until 2020/21 at the earliest.
The availability of having a transferable nil rate band from one spouse to the other has made little overall difference to the amount of tax collected by the government from IHT. The amount of IHT collected this year and next is expected to rise until 2017 when the new residential nil rate band is introduced giving the potential for families of having a £1m exemption from IHT from 2020/21.
5 years ago only 2.6% of all deaths incurred a charge to IHT. This year it is expected to rise to 7.1% rising to 8% next year.
Since the nil rate band was frozen in 2009 the amount of IHT collected has risen steadily and is expected to exceed £4.4 billion this year.
Although the new residential nil rate band due to be introduced in 2017 will bring some temporary relief this is not likely to affect the amount of IHT collected by the government and the OBR are predicting that by 2020/21 when the £1m nil rate band finally arrives the amount of IHT collected will have increased to £5.6 billion.
Your exposure to this tax can be mitigated by careful lifetime planning and by ensuring that you have an up to date tax efficient Will.