When you lose a loved one, you expect some bills. But few expect a bill from the tax-man when an estate is valued at more than the deceased’s IHT allowance.
But , because of fiscal creep, the cascade of wealth between generations promised us by John Major, has included a torrent of tax paid to HMRC.
UK Inheritance tax receipts reached a record £531 million in February, according to the UK tax authority. The IHT tax take for 2022-23 to-date is £6.4 billion, already surpassing the £6.1 billion received by the Treasury in the previous year.
— Josephine Cumbo (@JosephineCumbo) March 21, 2023
As older people’s wealth increases, the IHT threshold doesn’t. The promise of death taxes being abolished, featuring in many political speeches over the past 25 years, has not materialized.
The record IHT haul for the Treasury is the result of the freezing of the threshold at which IHT is payable on deceased estates. If a person’s estate is worth more than £325000 when they die – tax of 40% is typically payable on the estate.
— Josephine Cumbo (@JosephineCumbo) March 21, 2023
Ironically, the furor over allowing pension pots to transfer to the next generation tax-free is of little help to those who have such pots. All they can hope to use their pots for is to pay the bill on inherited wealth as it arrives.
Of course the £325,000 quoted figure is doubled if their if a spouse has passed on the wealth on an earlier death and there are plenty of ways of reducing the liability using lifetime gifts. The management of IHT has become a strategic “value add” for financial advisers.
Nonetheless, the arrival of a tax-bill with the bequest remains a problem for many families, especially when the bulk of the estate is illiquid (the house).
If you are worried about the financial consequences of you becoming an inheritor , there are more details here.