Have a guess at how much the UK government earned from inheritance tax (IHT) in the 2013/2014 tax year? Half a billion? One billion? Two? According to figures released by the Office of National Statistics (ONS), IHT rose by 8.6% from the previous year to reach a mind-boggling £3.4bn. This brings the total almost back up to pre-financial crisis levels – in 2007/2008 it totalled £3.8bn.
A combination of two factors explains this increase. Firstly, the tax threshold which has remained at the same figure of £325,000 over the last 5 years while during that time inflation has been rising – slowly I will grant you, but rising all the same. Also rising is the second factor in this equation: UK property prices. These rose 10.2% year on year to June 2014 and as they did so more dragged more UK households into the IHT net. Any estate over the £325,000 threshold is liable to IHT at 40%.
This is something of a political hot potato in the UK, affecting as it does the middle classes who David Cameron is desperately trying to woo ahead of the next election. He recently voiced his opinion that only the ‘very wealthy’ should have to pay IHT although it is thought unlikely that any changes to IHT legislation will be made ahead of the next election as the conservatives Coalition partners would veto it. Perhaps it will be part of the Cameron’s election manifesto but with austerity and a large budget deficit still hanging around it is a measure that may be difficult to justify.
As the Prime Minister so succinctly put it, people should be able to pass a family home on to their children rather than leave it to the taxman. Show me a person who wouldn’t want do that with not only their home but all their assets. The good news is that if you are liable for IHT in the UK upon your death you can minimise your bill with clever and legitimate estate planning. If this issue affects you, do feel free to get in touch and discuss the options with me.