Why the Taxman Is Getting a Share of More Family Inheritances

More people face being presented with a bill for inheritance tax (IHT) as house prices rise and people’s estates increase in value.

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Three-fifths of those surveyed by insurance company Canada Life didn’t realise their estate would be liable for IHT when they died, while over half did not know the tax is charged at 40%.

The current figure of £325,000 has been in place since 2009, but rising house prices have taken many people over the limit. IHT is no longer a tax on the rich, who are likely to protect their assets.

Families paid £4.7bn in IHT in the tax year 2015/16 – up 22% in one year. Experts warn many people are unaware of IHT or do not realise that all of their assets, including investments and savings, are added to the taxable pot.

Help on the Way

In order to lessen the number of people hit with an IHT bill, the nil-rate band – the threshold for IHT – will stay frozen until the year 2021 at today’s rate, and there will be a new IHT allowance for those who want to leave their main family home to their offspring. It’s being phased in from April.

By the year 2020 this will mean, for parents, IHT will not be payable until the estate is wroth £500,000, or £1m for a married couple.

Avoiding IHT

There are several ways you can avoid leaving your beneficiaries with a whopping tax bill. Firstly, everyone is advised to make a will and keep it up to date. If your assets are likely to be affected by IHT, consider setting up trusts – speak to an independent financial advisor for help.

You can also make gifts to people before you die, but these are subject to certain rules and depend on how soon after giving a gift you die. According to HMRC, gifts made three to seven years before your death are taxed on a sliding scale.

If you have debts, consider setting up an Individual Voluntary Agreement (IVA) to help you pay them off and let you leave more of your assets. There are plenty of companies who can help with an IVA.

Whatever your assets, there are steps you can take to ensure your family doesn’t lose out when you die.