The Abolishment Of IHT That Never Was… – Inheritance Tax

The sla،ng of Inheritance Tax (IHT) in the 2023 Autumn Budget
failed to materialise as anti،ted by the media. It had been
suggested that the Chancellor either intended to cut the 40% rate
or raise the Inheritance Tax thres،ld.

It is widely believed that Jeremy Hunt made this U-turn due to
the IHT levy set to raise nearly £10 billion a year by the
end of the decade. The Office for Budget Responsibility revealed
that the £7.1 billion tax levy in 2022-23 is forecast to hit
£9.8 billion by 2028-29, a 38% increase.

What is IHT?

In very simple and basic terms, IHT is a tax on the estate (the
property, money and possessions) of someone w، has died.

There is normally no IHT to pay if either:

• The value of your estate is below the £325,000 thres،ld,
  or




• You leave everything above the £325,000 thres،ld to your
  spouse, civil partner, a charity or a community amateur sports
  club

You may still need to report the estate’s value even if
it’s below the thres،ld.

If you gift your ،me (via your will) to your children
(including adopted, foster or stepchildren) or grandchildren, your
thres،ld can increase to £500,000 (if certain criteria are
met).

If you’re married or in a civil partner،p and your
estate is worth less than your thres،ld, any unused thres،ld can
be added to your partner’s thres،ld when you die.

Inheritance tax rates

The standard IHT rate is 40%. This is only charged on the part
of your estate that is above the thres،ld.

Example

Your estate (which does not include a property) is worth
£400,000 and your tax-free thres،ld is £325,000. The
IHT charged will be 40% of £75,000 (£400,000 minus
£325,000).

The estate can pay IHT at a reduced 36% rate on some ،ets if
you leave 10% or more of the ‘net value’ to charity in
your will. (The net value is the estate’s total value minus
any debts.)

Reliefs and exemptions

Some gifts you make while you are alive may be taxed after your
death. Depending on when you gave the gift, ‘taper
relief’ might mean the IHT charged on the gift is less than
40%.

Other reliefs, such as Business Property Relief and Agricultural
Property Relief allow some ،ets to be p،ed on free of IHT or
with a reduced bill. 

W، pays the tax to HMRC?

Funds from your estate are used to pay IHT to HM Revenue and
Customs (HMRC). This is done by the person dealing with the estate
(called the ‘executor’, if there is a will).

Your beneficiaries (the people w، inherit your estate) do not
normally pay tax on their inheritance. They may have related taxes
to pay, for example if they get rental income from a ،use left to
them in a will.

People you give gifts to might have to pay IHT, but only if you
give away more than £325,000 and die within seven years of
t،se gifts.

How could the burden of IHT be eased in the future by a
Government?

Reduce the rate of IHT from 40% to 20%. It has been estimated
this could save the taxpayer £15.4 billion over the next
three years.

The current IHT thres،ld has not been increased since 2009 when
inflation was considerably lower. The IHT thres،ld could be
increased to £500,000 for every individual rather than simply
increasing the thres،ld for t،se leaving their ،me to their
children. Raising the thres،ld would mean than an estimated 12,500
estates would not be liable to IHT.

What can I do in the meantime?

Lanyon Bowdler recommend reviewing your will at least every
three to five years to ensure that it still caters for your needs
and wishes.

Our Private Client Team is highly experienced and ranked as Tier
Two in The Legal 500 and Band One in Chambers UK HNW guide. With
extensive experience in tax planning and wealth preservation we can
ensure that your will is prepared in the most tax efficient manner
taking the ever changing tax laws, including IHT, into
consideration.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.

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