IHT – under the spotlight
According to figures from HM Revenue and Customs, Inheritance Tax (IHT) revenues are up again, with £5bn being paid in the 2017–18 tax year. This increase comes despite the introduction of the residence nil-rate band in 2017.
With more families falling into the IHT bracket, campaigners are hoping that the current review by the Office of Tax Simplification, will pave the way for a simpler and fairer system.
Simplification is key
With parents often looking to fund house purchases for their offspring, the 7-year rule that means transfers become exempt for IHT purposes after that time, is integral to tax planning.
The low amount of £5,000 that can be given away to children upon marriage should be a prime candidate for overhaul; so too should the annual tax-exempt gift allowance of just £3,000.
Many believe that a positive step would be to remove the overly-complicated residence nil-rate band. In the meantime, whilst we’re awaiting the outcome of the review:
What assets can be passed on free of IHT?
Everyone has a nil-rate band enabling them to pass £325,000 of assets tax-free. Most gifts made more than seven years prior to death are also free of IHT, as are gifts made between married couples and civil partners. Additionally, the residence nil-rate band rises annually, reaching £175,000 in the 2020–21 tax year.
There’s a £3,000 gifting allowance each tax year (if unused, this can be carried over for one year). Wedding and civil partnership gifts are exempt, up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else. Gifts of up to £250 per beneficiary per tax year are exempt, provided the recipient hasn’t received part of the £3,000 allowance.
Regular gifts from income can be exempt in certain circumstances. There is normally no IHT payable on gifts to charities or larger political parties. Pensions are not usually counted as part of an estate for IHT purposes, though other taxes may apply in some circumstances
. Inheritance Tax is complex; professional advice is always recommended.
The information in this article is purely for information purposes and does not constitute advice.
The Financial Conduct Authority does not regulate some forms of taxation advice.