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Inheritance Tax Hits Record Level

Inheritance Tax Hits Record Level

Official figures from the Office for National Statistics (ONS) have revealed that households paid more in inheritance tax (IHT) last year than at any other point since the beginning of the recession in 2008. The ONS analysis of HMRC data shows that death duties totalled £3.4bn in the year to March, an increase of 8.6% on the previous year’s numbers.

The number of estates caught by inheritance tax rose from 15,584 in 2012-13 to 15,976, representing nearly 3% of all deaths in the year.

The figures also reveal that women pay more death duties than men. Over the last tax year 9,016 women paid £1.53bn, an average rate of £169,000 per person. While a total of 6,959 men paid £1.13bn, over the same period, with the average person paying £161,000.

Rising property prices to blame

The ONS said that the rise in collections are largely due to increasing property prices and static allowances pushing people over the £325,000 threshold for paying the duty.

“Residential property makes up approximately a third of the total value of taxpaying estates and the ongoing rise in property prices has contributed to a rise in overall tax take. At the same time, as the average value of estates rises, an increasing number of estates will now be valued over the IHT threshold (or nil rate band), which has been frozen at £325,000 since April 2009,” a statement from the body reads.

Pressure increases for £1m threshold

Experts believe that the figures will ramp up the pressure on the Conservative Party to pledge to increase IHT allowances in their manifesto for next year’s election. The Party had pledged to raise the threshold to £1m in the last election but scrapped the plan upon entering the coalition. Britons currently pay a higher proportion of IHT on their estates than almost any other major country in the developed world.

In March, in a sign that they still support the £1m threshold policy, the Prime Minister said: “Inheritance tax should only really be paid by the rich, it shouldn’t be paid by those people who have worked hard and saved and bought a family house”.

Number of estates caught by IHT set to double

The government’s fiscal watchdog, the Office for Budget Responsibility (OBR), predicts that the number of estates caught by IHT will double by 2018-19, meaning almost one in ten deaths will be liable for death duties. By 2018-19, the OBR expects IHT to be raising £5.8bn.

Separate calculations by the Institute for Fiscal Studies have forecast inheritance tax receipts will reach a 45-year high in four years’ time by 2018 if the current threshold remains the same.

Research carried upon release of the IHT figures, suggested that the majority of people are unprepared for dealing with IHT, with just one in four consumers knowing the basics, such as the rate in which the threshold hits and tax rate if they are to go above it.

Natalie Boorer, Senior Solicitor in IBB Solicitors’ wills, trusts and probate team, comments, “It is arguable that the only reason men pay less IHT than women is because, statistically, their life expectancy is lower. In such a case, the husband dies first, leaving his entire estate, including his share of the house, to his wife tax- free. Then when the wife dies, her estate has to bear the IHT on the entire joint estate. Leaving property in a trust on the first death may potentially save inheritance tax in the future, and it can also help with protecting the combined estate from being eaten up in care home fees.”

Planning ahead during your lifetime means that you can ensure that your estate is distributed properly. Our trust solicitors can also advise you on the best way to preserve your family’s wealth by making cash gifts during your lifetime, for example, or protecting assets in trusts. For those who are not married, we can also help with advice to ensure that your partner receives your legacy and is not subject to challenges to probate after you’ve gone.

If you still haven’t finalised your last wishes or would like to write a new will, want to leave money in trust for a young relative, or are struggling with probate issues, call us on 01494 790002. Alternatively, email us at estatemanagement@ibblaw.co.uk..