Could you be caught up in the inheritance tax bonanza?

Recent data has revealed that inheritance tax (IHT) receipts reached a record level in the 2022/23 tax year.?

Every month the government publishes data that sets out HMRC’s cash tax receipts in detail. The data issued in late April provided the first set of figures for the sums raised in the 2022/23 tax year. This showed that between 2013/14 and 2022/23:

·????Overall HMRC receipts rose by 59.6%;

·????Income tax receipts increased by 57.3%; but

·????IHT receipts jumped by 108.3%.?

For comparison, between April 2013 and March 2023, prices rose by 31.1%, using the CPI as a yardstick.

As the graph shows, the path to the more than doubling of IHT receipts was not smooth. Receipts barely changed between 2017/18 and 2020/21, mainly due to the phased introduction of the residence nil rate band (RNRB) and low inflation. However, in the following two years, the IHT cash entering the Exchequer’s coffers rose by a third. That reflected both the end of the RNRB phasing and the rise in inflation.?

Inflation is particularly important for future IHT receipts as both the main nil rate band and the RNRB are frozen at their current levels – ￡325,000 and ￡175,000 respectively – until at least April 2028. Such a prolonged freeze at a time of high inflation is a classic example of a stealth tax increase, dragging more estates into the IHT net and raising extra tax from those already caught.

Shortly before the 2022/23 IHT data emerged, the government quietly announced a technical change in its approach to discounted gift trusts, which have long been popular for IHT planning. The unexpected change was the first since 2013 and has reduced the attractiveness of the scheme for potential investors. Fortunately, there remain plenty of other options to mitigate the impact of the tax, from other lifetime trust-based arrangements to the careful structuring of a will.

IHT is a complex tax that requires a holistic, long-term approach to planning. If you would prefer more of your wealth to pass to your chosen beneficiaries rather than to HMRC, the sooner your plans begin, the better.?

Disclaimer:?The information in this article has been prepared to help you become aware of information that may be relevant to you and that you may wish to discuss with your financial or other professional advisers. However, the information is only general information. It is not intended to be personal advice, it does not take account of your circumstances or requirements and shall not be regarded as financial, legal, tax, or other professional advice. Every effort has been made to make sure that the information in this guide is accurate and up to date. Tax legislation and rules, and how they are applied, may change and may depend on your individual circumstances. No responsibility or liability can be accepted for errors or omissions in this guide. The value of Investments may can go down as well as up and you may get back less than you originally invested. You must not rely on the information in this guide in making, or choosing not to make, any decisions, and no liability is accepted for any reliance placed upon it by any person. If you are in any doubt about how you should act, you must seek advice from a suitably qualified financial or other professional advisers.