Former Chancellor of the Exchequer Lord Roy Jenkins famously described inheritance tax as a voluntary tax, stating that inheritance tax is…“broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.” If you don’t want 40% (after allowances) of all your hard-earned assets to go to the taxman, estate planning can help you keep more of your estate in the family.
More Assets, More Inheritance Tax
According to reports in the FT.com, HMRC received a record £5.4bn in tax revenue in the financial year 2018/19, with the average inheritance tax bill reaching £200,000. That’s nearly double what it was in 2011. This rise has been driven by increases in asset prices, including housing wealth, especially in the South. In recent months however, IHT receipts have fallen. June has seen a 9% fall compared to May and 30% compared to the same period last year. Unfortunately for the public it doesn’t look like the recent drop is part of a more sustained fall in the value of IHT receipts, rather expected fluctuations.
An additional contributor to the boom in inheritance tax receipts is the increased pension freedoms. Since changes made in 2015 to the flexibility of pension withdrawals, over £28 billion has been withdrawn, raising more than £5bn in additional tax.
It is widely accepted that the existing inheritance tax system is unnecessarily complex. A review to simplify the system was commissioned over a year ago by the then Chancellor Philip Hammond, however, in the current political climate, any recommendations made by the review are likely to get lost in the noise. It will be interesting to see if the review actually does result in some simplification, but for now, with a potentially shifting framework, long term planning for IHT is very difficult, but still very much worthwhile.
Plan Your Inheritance Tax
Inheritance Tax planning is a key part of our financial services. With a clear idea of the value of your estate – and how that value is spread across property and other assets such as savings and investments – we can help you develop an effective Inheritance Tax strategy that’s tailored to you and your family. Learn more by taking a look at our Inheritance Tax planning page.