The government raised £7.5billion through Inheritance Tax (IHT) in the last 12 months – a record amount and an increase of £400million from £7.1billion the year before.

The Institute for Fiscal Studies predicts receipts from IHT will rise to more than £15billion by 2032-33 in line with expected increases in levels of wealth.   

As the government has frozen the thresholds at which IHT applies, more families will be dragged into the IHT net, making it more important than ever to structure your estate strategically.

Navigating IHT planning in 2024

If you own assets in the UK that exceed £325,000, your estate may be exposed to IHT, which is charged at 40%.

What constitutes your ‘estate’ includes everything you own like your home, investments, bank accounts, cash, and anything else that has monetary value such as vehicles, jewellery, furniture and paintings. It is important to note that any gifts exceeding your allowances/exemptions made within the last seven years could be included in your estate for the calculation of IHT upon your death.

The amount of tax owed by your estate is a matter that is very specific to individual circumstances, and there are a number of rules, exemptions and reliefs that may apply in your particular situation.

While the Treasury’s receipt of IHT continues to grow, it is for some, a discretionary tax. It is possible to pay no IHT if you can reduce your estate to the thresholds, however, with assets rising in value and thresholds remaining frozen, this is becoming more difficult to achieve. Many individuals will have an estate that exceeds these limits and do not want to release equity through lifetime mortgages or downsizing.

The threshold of £325,000 rises to £500,000 per person if you have children, are worth less than £2million and have a main residence where the equity value is at least £175,000. This allows many couples to pass on up to £1million tax-free. There are provisions to protect this allowance if the property has been sold (e.g. to fund care fees). If no replacement property is purchased, then it will be important to preserve certain paperwork at the time of the sale.

Individuals and couples with estates worth between £1-3million face particular challenges in IHT planning. Their taxable assets are well in excess of the thresholds, yet they are less likely than ultra high net worth individuals to have financial advisors reviewing their position regularly and providing recommendations.

How TWM can help

There is no need for your estate to pay more IHT than necessary, and an experienced solicitor can help you to plan your estate in the most strategic way. The earlier you start, the more effective your planning is likely to be and the more options you will have.  

To discuss your requirements, please contact our specialist Private Client team today for an initial no-obligation consultation.