Inheritance tax: The silent tax collector
The government's receipts from inheritance tax (IHT) have been rising much faster than the yield from other taxes.
IHT is a good example of one of the lower profile taxes that is quietly producing an increasing slice of revenue for the Exchequer. In 2016/17 IHT is projected to raise almost £5bn, more than double what it produced in 2009/10. There are many reasons why the Treasury's IHT income is outpacing the growth in overall revenue, but the most significant is probably the freezing since April 2009 of the nil rate band broadly speaking the amount of your estate (after any exemptions) not subject to tax at a flat rate of 40%.
Average UK house prices have risen by more than 30% so far over the period that the nil rate band has been frozen, according to Nationwide. In Greater London the increase exceeds 85%. It's true that the government is introducing a main residence nil rate band (RNRB) in April 2017, initially at £100,000, rising to £175,000 by April 2020, but this will be of little or no help to some people.
The RNRB has also been criticised by the chairman of the Treasury Select Committee who said it failed to meet any of three requirements that 'Tax rules should aim to be simple, fair and clear'. While the RNRB is being phased in, the ordinary nil rate band will continue to be frozen, meaning its first increase above the 2009 figure of £325,000 will not occur until at least April 2021.
If you do not want the Exchequer to be a major or even the largest beneficiary of your estate, then the sooner you begin planning, the better. The starting point is making sure your wills are up to date or putting in place a will if you are currently relying on the vagaries of intestacy law. Once the structure of your will is settled, there are no simple rules of thumb for the next stage, other than to take expert advice. Estate planning requires a clear, holistic approach and needs to be integrated with other aspects of your personal financial planning.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice or will writing.