Families being stung with shock IHT bills doubles

In a recent article in the Telegraph, a freedom of information (FOI) request to HMRC revealed the number of people paying inheritance tax (IHT) on gifts made before death is rising sharply. 

Gifts of any amount can be given at any time, but if the giftee passes away within seven years of the person receiving it the gift becomes taxable, and it could be added to the value of the estate for IHT. 

In 2011/12 the total amount of estates ending up having to pay IHT for this reason was 590, rising mostly every year until 2020/21 when there were 1,300 estates affected*. Not only this but the amount of IHT collected has more than doubled in this time, from £101m to £256m.  The average each estate paid in 2020/21 is £25,000 more than ten years prior, paying £196,923 each. 

It is predicted that more than 7% of all estates will be dragged into paying IHT by 2032/33, while the most recent figure shows just 4.4% were impacted by the tax in 2021/22. 

Watch our video about the 7 year rule to find out more about the gift rules

Establishing an estate plan 

Data from HMRC through a FOI request stated that 45% of people who had made large gifts were aware of the tax rules when gifting large amounts of money while alive. Additionally, just one quarter were clued up on the subject of IHT. 

It’s important that anyone receiving a big gift from an elderly relative takes the time to assess the tax situation before they spend it, and anyone planning to transfer their assets to the next generation should seek financial planning to ensure their gifts are safe from IHT. 

One option for people looking to pass on assets tax-efficiently, particularly those who have significant wealth tied up in their properties, could be equity release. 

A lifetime mortgage and gifting arrangement allows people to reduce the value of their estate that maybe subject to inheritance tax, so that more of their hard-earned assets can pass to the next generation. It also means that liquid assets, such as cash and savings, remain untouched and are available to fund expenditure for the remainder of their lifetime.  

Of course, it's important to consider their overall financial situation and equity release may not be suitable for everyone. 

How we can help 

At The Private Office we have experienced advisers for equity release. Importantly these advisers are also Chartered Financial Planners so have knowledge across all areas of financial planning which makes them well positioned to consider a person’s overall financial situation and help provide the most suitable solutions to meet their objectives. 

There are lots of other ways to reduce inheritance tax bills which the advisers at TPO are knowledgeable on. 

If an equity release is considered suitable, as an independent financial advice firm, we have the freedom to explore the whole of the equity release market and the advisers have excellent knowledge of the products available. 

If you’d like to know more about equity release, please get in touch. 

The information in this article is correct as at 24/09/2024. 

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate estate planning, tax or trust advice. 

This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration.

*Source: Evelyn Partners