ONS Data Reveals IHT Revenue Increases

The Office of National statistics has published data showing the Inheritance Tax ('IHT') take in the tax year ending April 2013 was £3.1bn, up from £2.9bn in the previous year.  This represents the third year on year increase in revenue with the tax paid in this latest financial year 29% higher than year 2009-2010 when it sunk to £2.4bn.

It is widely understood that IHT Revenue is closely linked with the housing market.  Indeed the highest IHT tax-take was £3.8bn in 2007-2008, the tax year that also marked the peak of the housing market, with the credit crisis and the collapse of Northern Rock taking place in late 2007.

With the IHT tax-free threshold frozen until 2019, and the housing market entering a wider recovery, revenues are only set to further increase.

The Office for National Statistics said that "up until 2007-2008 receipts had been climbing steadily, reflecting increases in asset prices over this period, specifically property prices and household savings."
IHT Chart

It put the subsequent fall-off down to dropping house prices as well as a change to IHT policy, where married couples were permitted - in an initiative introduced by the previous Government - to transfer their IHT allowances to one another, effectively doubling a family's tax free threshold without entering into complex will planning.

The ONS said: "The particular policy change was the transferable nil rate band whereby any unused nil rate band from the first death within a marriage or civil partnership, could be claimed against the estate on the second death. Although the policy became effective in October 2007, the six month lag between a death occurring and having to file a return meant its impact could only be seen from the 2008-09 year."

The nil rate band - or allowance - is currently frozen at £325,000 per person, so married couples can bequeath up to £650,000 tax-free. The Government has indicated it is not likely to increase for several years. Beyond the exempt sum, tax is levied at 40pc.

Tim Adcock, Mitchell Charlesworth tax expert and partner said: "We are again seeing an increase in interest from clients wishing to mitigate potential IHT liabilities.  There is a desire that hard earned wealth should be passed down to the next generation tax efficiently rather than a significant proportion of the wealth being lost to the Government through the payment of IHT.

"Inheritance tax has often been thought of as a 'voluntary tax'.  Whilst this is a simplistic view, there is much planning that can be undertaken during the lifetime of an individual, and through the structure of wills in order to reduce the potential tax burden."

Tips to minimise the inheritance tax bill:

  • Make a will, as dying intestate can trigger unnecessary IHT liabilities e.g.  the full estate can be passed to a spouse tax-free, regardless of value  as opposed to dying intestate when other parties may have a claim to the estate triggering a tax liability
  • Gifts made seven years or more before the death of the donor are exempt, and so it pays to be generous sooner than later in order to successfully reduce the taxable value of an estate.
  • Those with large incomes can make gifts from this income free of any IHT liability.

For more information or to discuss how we can help you with your tax planning and obligations please contact Tim Adcock on 0151 255 2300 or complete our enquiry form.

The full report can be found on the Office for National Statistics website.

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