Efficient use of Reliefs and Exemptions
Inheritance Tax is a tax levied by HMRC on property, money and other possessions of a person who has died. The standard tax rate is 40% on the outstanding amount above the threshold. Some gifts you give while you’re alive may be taxed after your death depending on how many years you live after the gift is given.
HMRC claims that Inheritance tax receipts hit a record high of £5.2bn in the last tax year, despite the introduction of a new allowance that allows couples to pass on a family home worth up to £850,000 tax-free (Financial Times, 2018). Making it for HMRC to take more than its fair share of people’s inheritances, that is why most people claimed that it is the Britains most hated tax.
This is evidence that the majority of people are unaware of the huge amount that could be saved just by seeking the advice of an expert and the steady rise in the price of homes and other properties over the years does not help matters.
There are various reliefs and exemptions that could be utilised to reduce the inheritance tax payable. Ranging from unused nil rate band, taper relief, business property relief, agricultural relief, etc. In addition, you can qualify for taper relief which could reduce the standard rate less than 40%. There are also other reliefs, such as Business Relief which allows some assets to be passed on free of this Tax or with a reduced bill and also Agricultural Relief given on your estate which includes a farm or woodland.
In April 2017, concern over rising property prices prompted the government to further introduce Residence nil rate band of an extra £100,000 allowance on family homes that can still be used to reduce inheritance tax payable. The Financial Times (2018) claimed that only a few number of people take advantage of this “fiendishly complex” legislation.
HMRC data shows that just over 3,000 taxpaying estates claimed the new residence nil-rate band between April and December 2017 and an estimate shows that over 20,000 estates paid IHT last year which led to the recommendation by HMRC to make the most use of the new inheritance tax rules. Financial Times (2018) confirms their estimate shows that over 20,000 estates paying IHT did not claim the new relief.
Need advice on how new reliefs and exemption could be used in an effective manner which could make significant difference in the amount of IHT payable? Call our Tax Team at Bergen Associates for an appointment.