Treasury receipts from inheritance tax have increased by 22 per cent in 2015/16 compared to the previous 12 months, to a record £4.7 billion.
The rise is mainly due to an increase in house prices in recent years, with critics arguing that a tax initially intended to capture only the rich is now being paid by people who are not particularly wealthy but have seen their family home rise in value.
Tim Martin a partner and Inheritance Tax expert with Moore Thompson, explained: “Inheritance tax is charged at a rate of 40 per cent of the value of any assets over an individual’s available nil rate band.
“Currently this is set at £325,000 per person, although if the first of a married couple to die leaves everything to the survivor then their nil rate band can be transferred, so that a maximum of £650,000 can be left on second death without paying any tax.
“There is some additional relief on the way, with the introduction of an additional ‘residence nil rate band’ of £100,000 per person from April 2017, which will further increase to £175,000 per person by 2020/21.
However, there is some confusion, regarding how this measure will apply, so expert advice should be sought to ensure the tax burden is minimised.
“The residence nil rate band will only apply to those leaving their home to their ‘direct descendants’ and details are still to be announced on how the rules will apply to those who have downsized or sold their property in order to move into residential care.
“It is important to find out how the residence nil rate band will affect you, if at all, and how to put in place plans to maximise available reliefs. For example, no inheritance tax is payable on gifts to charity and it may, in certain circumstances, also be possible to claim relief on business or agricultural assets.
“By taking advice now, you will have taken all available steps to ensure that the assets you have worked hard to accrue, are passed to your chosen beneficiaries rather than into the tax man’s coffers.”
For more information on inheritance tax planning, please contact us.