Inheritance tax warning as 'risk' Jeremy Hunt may target IHT in Budget - what you can do
The hefty 40 percent tax applies to any total assets inherited from an individual above the value of £325,000, or above £650,000 for couples.
More people are being hit by inheritance tax as the price of property and other assets increase. The Government has consistently avoided changing the threshold for the tax, meaning inheritance tax (IHT) receipts have continued to grow - but some analysts are warning Chancellor Jeremy Hunt may amend the policy in the upcoming Budget.
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Anthony Whatling, tax partner at wealth manager Evelyn Partners, said: “There is a risk that the Spring Budget on March 15, 2023 will bring further changes to IHT, so you may wish to consider making good use of the current allowances where possible.”
People can give away gifts to reduce the size of their estate and so limit their IHT liability. There is an annual gift allowance of £3,000, which can be split between any number of people.
The allowance can be brought forward for one tax year so an individual may want to use up their allowances for two years before the turn of the tax year, in April.
Mr Whatling said: “The current year’s allowance is automatically used first. It is per donor, not per recipient, so a married couple can make gifts independently.”
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A person can also give away any number of gifts of up to £250, to different people, and avoid paying inheritance tax on the amounts.
Individuals can also give away larger gifts of any amount as long as they live for seven years after the gift is given.
The amount of inheritance tax that applies to the gift gradually reduces as the seven year anniversary approaches.
A person’s IHT threshold increases to £500,000 if they own their own home and they leave it to their children or grandchildren, and if their total estate is worth less than £2million.
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Daniel Harrison, chief executive of True Potential, told Express.co.uk inheritance tax is a controversial policy.
He said: “Inheritance tax reform is always a hot political issue. It’s a big revenue raiser for the Government but it’s also one of the most unpopular taxes with the public with many thinking it’s unfair.
“Being taxed on what you pass down to your loved ones, having already been taxed on income and wealth growth during your lifetime leaves a bad taste in many people’s mouths.”
He spoke about the ways people can reduce the IHT bill for their successors. He commented: “For now, you can do things like keeping savings in your pension, making an Expression of Wish to dictate who your wealth should go to, and contributing to charity, which can all help your loved ones inherit more of your hard earned wealth.”
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A person who donates 10 percent of their estate to charity when they die will also get a discounted inheritance tax rate of 36 percent.
This rate will apply to the rest of their estate once the charitable donation has been deducted.
Saving into a pension is a good way to avoid inheritance tax as pensions are not considered part of a person’s estate and so avoid the tax.
Under the current personal allowance rules, an individual can pay in up to £40,000 into their private pensions each year tax-free.
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An Expression of Wish is an important document as it informs the pension provider who will inherit the funds when a person dies.
An individual may arrange this in a 98 percent, one percent, one percent format, with their spouse or partner inheriting 98 percent of the scheme while each of their children receive one percent each.
When the person who holds the 98 percent eventually dies, the two children then can receive 50 percent of the pot each.
Mr Harrison explained: “The benefits of keeping an inherited pension alive as a beneficiary pension are clear.
“This is why we’ve been speaking with all of our clients to explain the importance of completing an Expression of Wish.
“We’ve also been encouraging them to speak with their beneficiaries to provide them with information to ensure they make the right decision.”
