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Inheritance Tax receipts soar by nearly 20%

View profile for Paul Rothwell
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No real surprise as Inheritance Tax receipts soar by nearly 20%. Can you limit the damage Inheritance tax does to your estate?

Most economic editors in the media expressed surprise that there was a surplus in Government finances announced for January 2023.  The surprise was the surplus came at a time of substantial spending by the Government to assist families with energy bills as part of its programme to help with the cost of living crisis. 

The reason for the “surprise surplus” was higher-than-expected tax receipts by HM Revenue and Customs (HMRC).  The Government therefore received £5.4 billion more than it spent in January 2023.  Some of the surplus was explained as being higher than expected Income Tax payments, particularly from the self-employed.  However, a less reported figure was the fact that HMRC raked in £5.9 billion from Inheritance Tax (IHT) between April 2022 and January 2023.  This was a period of record receipts for IHT, and represents a massive 18% increase from the same period last year.

But there really should be no element of surprise.  The Government is on a campaign to increase IHT revenues and, in the Autumn Budget, it announced that the IHT tax-free allowance of £325,000 was to remain frozen until 2028. This represents a significant tax increase.   


IHT on any estate is payable at 40%.  According to recent research, in 2019/2020, the average IHT bill was £216,000.  However, this is now expected, as a result of the freeze in the tax-free allowance, to reach £288,611 by the year 2027-2028.  It is estimated that more than 10,000 additional estates will end up paying IHT by 2028 than in 2022 and that the sums received by the Treasury could rise to £10 billion a year.

“IHT has historically been considered a tax for the very wealthy, but the freeze in the tax-free allowance, together with increases in the value of assets such as houses, means that far more people than previously are being caught by HMRC’s tax net for IHT”, said Richard Carter, Managing Partner at Martin Tolhurst.  “Many people in the South-East and London in particular, who would not consider themselves by any benchmark to be “rich” or “wealthy” could end up paying IHT on their estate.”

There are a number of ways to try and minimise your IHT bill and reduce liability of your estate legitimately.  Some of the rules are complex and therefore it is often worth speaking to an independent financial planner or accountant. 

Some time and planning here is both easy and essential:-

1. Make a Will and Keeping it up to date

This is the first step that can be taken easily.  By making a Will, you can determine who you wish your estate to go to and avoid the intestacy rules that offer no flexibility or choice.  Making a Will enables you to carry out tax planning.

Keeping your will under review is important too. Wills are life documents and should be reviewed at regular intervals and whenever life changes.

2. Lifetime gifting

People whose estates could be charged IHT should also consider lifetime gifts.  Gifts should only be given where it does not cause financial hardship for the donor, and should always be documented so that there is clear evidence in the event that HMRC challenge any lifetime gifts, either during the lifetime, or when an estate is being dealt with.  There are other considerations beyond tax including social care fees, which should be taken into consideration. 

Examples of lifetime gifts that can be made, on which IHT is not payable, are annual gifts of £3,000, and if there is any unused allowance from last year, this can be used now, and therefore up to £6,000 can be given if last year’s allowance was not used.  Additionally, if there is a child who is getting married, then a one-off gift of up to £5,000 can be made.  For grandchildren, a gift of £2,500 can be made for marriage.

In respect of lifetime gifts, IHT is payable on a sliding scale on lifetime gifts that exceed the IHT tax-fee allowance – it is 100% in years 0-3 since the time of the gift, and then decreases from 40% to 32% in the fourth year, and decreases by a further 8% each year.  After seven years, no IHT is payable on lifetime gifts.

3. Pensions

Pensions can be a good way of sheltering money from IHT.  Anyone considering this should obtain independent financial advice from a financial planner or advisor.  Most people consider that the purposes of a pension is to provide them with an income during their retirement.  But in respect of the pension fund, a beneficiary can be nominated should you die before the pension is received.  These have to be notified directly to the pension provider and, if that is the case, IHT is then not normally payable.  Income Tax can be payable if the death is after the age of 75.

4. Consider the whole Estate

People should remember that all of their estate assets are calculated for the purposes of the gross value of the estate to which IHT is attributable.  This includes items such as savings accounts and valuables, but also the favourite savings product of many people, an ISA, which is very tax-efficient during your lifetime, but which forms part of your estate for IHT purposes upon death.  The sums held in an ISA are not exempt from IHT.

5. Can you claim special relief on some estate assets?

IHT does have some generous reliefs when it comes to Business Property, Agricultural Property or Holdings, or shares within a small or family business.  Planning is, however, essential to maximise these reliefs and expert advice should be obtained. I carefully drafted will can help you maximise the reliefs against IHT your estate could claim.

6. Should I set up a Trust?

Setting up a Trust to hold assets is another option to consider.  This can be done via a financial planner or trust specialist.  However, it is worth bearing in mind that Trusts do have annual expenses and professional costs and trusts are subject to tax changes, so will  need constant attention and professional advice.  Trusts can therefore be expensive, but, run correctly, over a period of time, they can assist in minimising IHT.  They can also help where someone wishes to gift assets to a beneficiary who has traditionally not been very good at managing their own financial affairs or money.

7. Charitable Donations are IHT exempt.

Donations of estates to charity are also exempt from IHT.  There is also the possibility of a “bonus” as, if you donate at least 10% of your estate to charity, HMRC will give a 4% discount on your IHT rate for the rest of your estate, which lowers it from the normal 40% to 36%.  In larger estates, this can be a significant saving.

We have a specialist private client team at Martin Tolhurst – we would delighted to discuss any of the above actions with you and help you plan your estate and legally minimise potential IHT.

Contact our experts for further advice