Estate Planning / Inheritance Tax / News / Tax

Rising Inheritance Tax bills – when and how to review your Estate plans

With Inheritance Tax bills predicted to rise by a third by the 2026/27 tax year, when’s the best time to review your Estate planning? And how should you do it? Steve Wright, our Estates Director, takes a look at what you might need to consider.

Many more of us should expect to pay Inheritance Tax (IHT) over the years to come. The combination of rising UK property prices and frozen allowances is helping push up IHT bills. Last month we learnt that an extra £729m in Inheritance Tax was collected by the UK tax authorities over the past year. This represents the largest single annual increase in five years.

Additionally, the expectation from the Office of Budget Responsibility, which provides independent economic forecasts, predicts a rise of 36% in the amount of IHT collected by 2026/27. This will push the amount of IHT to a staggering £8.3 billion in that year.

Remember too that generally IHT is a flat tax – and that the 40% charge can really bite once your Estate is over the Nil Rate Band threshold, which currently stands at £325,000. So, with more families being caught in the IHT net it’s important to think through your situation, and make sure your plans are robust enough to cope. Here are some of the key steps to consider:

  • Plan ahead – it’s very likely that you will pay less in IHT if you plan early enough. What’s more, it’s important to be realistic – IHT is no longer just a problem for very wealthy individuals.
  • Gift away – if you plan to leave your Estate to your family, then consider gifting whilst you’re still around to see your loved ones enjoy it. If you are in the fortunate position to have surplus cash or assets, passing them on could reduce IHT down the line. Some caveats, such as the ‘seven year rule’ apply – this means you’re likely to need to wait seven years from making the gift for its value to no longer be included in your Estate for IHT purposes. You’ll also need to keep careful records and be sure that the asset is properly passed on. For example, you can’t hand over the family home and still live it in by yourself, pass on a painting which still hangs on your wall or bequeath a valuable bottle of wine but still hold it in your cellar.
  • Regular gifts – you can also make regular gifts out of your income; for example, you could provide your children or grandchildren with a regular allowance to help supplement their funds or pay for schooling. Any regular gifts out of your spare income could be immediately excluded from your IHT chargeable Estate without the need to wait for seven years, provided they are structured correctly.
  • Be realistic – it’s useful to think about the overall value of your own Estate. Take into account property, investments (including ISAs), pension benefits and other assets including art, jewellery and wine. Totalling everything up, and realising what the potential IHT bill will be, can be an eye-opening task, and the first step to take in the plan to reduce your IHT bill.

To discuss your Estate plans please contact your nearest office.