Inheritance Tax intake hits record figures: What does that mean for me?

There are significant changes coming to inheritance tax in the future, but even before those changes come into effect, HM Revenue and Customs (HMRC) has announced it collected a record £6.7 billion in inheritance tax during 2022 and 2023.

An ominous sign of what is to come so it’s important you understand and prepare for the changes to come to protect your estate and ensure your beneficiaries can claim the full entitlement in your Will.

Why has HMRC collected a record total?

There are several factors cited for the increased amount of inheritance tax collected including the continued freeze tax-free threshold and more estates becoming liable to pay inheritance tax.

The prolonged inheritance tax threshold which has stayed at £325,000 since 2021 has played its part in the record collection alongside inflated asset prices which have pushed estate values over the £325,000 threshold.

Because of this, HMRC has collected an additional £700m during the financial year 2022/23, a 12 per cent increase on the previous year.

13 per cent more households became liable to pay inheritance tax, increasing the overall number of estates paying inheritance tax to over 31,000.

Inheritance Tax has been on a continuous rise with similar figures collected during the 2021/22 financial year and is making up a significant portion of Treasury earnings.

This will be a concern for individuals putting their estates in order because the fear of a significant inheritance tax bill is very real and has a detrimental effect on your whole estate.

A record rise, what are Government introducing in the future?

From April 2027, your unused pensions and death benefits will be classed as part of your estate and therefore, increasing the value of your estate and potentially making you liable to pay inheritance tax.

This means you could be paying much higher tax bills and reduced inheritance for your beneficiaries.

The Government and in particular Chancellor Rachel Reeves must find ways to balance the books. She has the unenviable task of trying to balance the Government’s books because of high borrowing, slow economic growth and tight fiscal rules.

The Chancellor could announce further inheritance Tax changes in the upcoming Autumn Budget, so it’s important you understand the current changes and can prepare for what is to come.

How can I protect my estate?

This news will no doubt cause concern especially if you have organised your estate or are planning to put your affairs in order.

However, there are measures you can put into place including reviewing your pension nominations. Based on the current and future climate, you may consider changing your pension nominations, it is always best to seek legal advice before considering this.

You can also update your Will and put Lasting Powers of Attorney (LPA) in place. Updating your Will means your wishes can be followed.

Introducing an LPA would also match your pension plans and could reduce the risk of an inheritance tax bill and protect your estate.

What is the first step I should take?

Before changing anything within your estate, you should seek legal advice. Speak with experts who can help you understand the current inheritance tax laws in place, what will be introduced and how that could affect your estate.

Having a sound plan in place can help you plan for every eventuality and more importantly, protect your assets and ensure your beneficiaries receive the full inheritance stated in your Will.

Contact our team for expert advice on Inheritance Tax and ensuring your estate is how you want it to be