Inheritance tax: who pays most and how to plan so your heirs pay as little as possible

 13 January 2022
Inheritance tax: who pays most and how to plan so your heirs pay as little as possible

How much is your estate worth? In general, if it’s worth over £325,000, your heirs may have to pay Inheritance Tax (IHT). Generally, IHT of 40% could be applied on the value of your estate over £325,000.

However, if you’re passing on assets to your spouse or civil partner, this is tax-free in most cases. If you’re a surviving partner who has benefitted from this, you can in turn pass on an estate worth £650,000. If your estate includes your home, that allowance could rise to £1million.

 

Which area pays the most IHT in the UK?

Given the figures above, where would you guess the most people pay IHT? The surprising answer, according to analysis of data from HM Revenue and Customs (HMRC) by Kingsley Napley, the top three areas in terms of number of estates with IHT due are:

  1. Barnet London (average bill £291,000)
  2. Wiltshire (average bill £229,000)
  3. City of Edinburgh (average bill £212,000)

 

The highs and lows

Less surprising is that the area where the IHT bills are highest (on average £1m) is Kensington and Chelsea.

“Outside of London and the Home Counties, Stratford-upon-Avon, Winchester, Devon and Dorset were found to rack up extortionate inheritance tax bills.”

In the UK, for the 2018/2019 tax year, the average IHT bill was £200,000.

 

£5.4 billion and counting

According to the government website:

“In the tax year 2018 to 2019, 3.7% of UK deaths resulted in an Inheritance Tax (IHT) charge, decreasing by 0.2 percentage points since the tax year 2017 to 2018 … IHT receipts received by HMRC during the tax year 2020 to 2021 were £5.4 billion, an increase of 4% (£190 million) on the tax year 2019 to 2020.“

 

“Unpopular and ripe for reform”

Currently, around 5.3% of UK deaths result in an IHT charge. In addition, Inheritance Tax is “unpopular and ripe for reform”, according to a 2020 report by the All-Party Parliamentary Group on Inheritance and Intergenerational Fairness.

Talking to the Financial Times at the time, John Stevenson, the Conservative chair of the APPG said:

“The huge complexity around how the tax is levied, and the reliefs available on it, leads to lots of confusion and a strong sense of injustice: the rich get away with not paying and IHT is perceived as an unfair penalty on hard working savers.”

Quoted the in The Daily Express, Sean McCann, a Chartered Financial Planner at NFU Mutual, said:

“Inheritance Tax is feared by many but paid by relatively few. But with the average bill in excess of £200,000, it can make a significant dent in a family’s wealth for those that do get caught in the net.”

 

Estate planning and IHT

Whatever your viewpoint on IHT, estate planning can help you put in place measures to reduce inheritance tax for the next generation. A new article at Forbes calls estate planning “A Love Letter To Your Heirs” but Tilney was more cynical!

"Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue."

Tilney

 

At Panthera Estate Planning , we offer expert succession and estate planning advice to help safeguard your hard-earned assets.

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Having looked around and contacted several professional organisations who would prepare my somewhat complicate will, I chose Panthera on a recommendation and sincerely believe I could not have found a better organisation.

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