More estates set to face inheritance tax
The number of estates paying inheritance tax is (IHT) set to rise by 15% this year, although the vast majority of people will still not be liable to pay any tax.
Private law firm Wilsons estimates that 30,000 estates will be liable for the tax during the 2016/17 financial year, up from 26,000 in the previous 12 month period.
The firm blames inflation and rising property prices in some areas for pushing extra estates over the £325,000 limit. It adds that more people becoming liable to pay the tax is also due to the government’s decision to keep the tax-free threshold at £325,000, where it will stay until 2019 at the earliest – although those who pass on their estate to their children or grandchildren will see the amount they can pass on IHT free increase in stages from April 2017 to £500,000 in 2022. This effectively raises the inheritance tax threshold to £1 million for married couples.
Inheritance tax remains a controversial subject, even though most people in the UK are not liable to pay anything when they pass on their wealth after death.
Those leaving wealth of more than £325,000 are liable to pay tax at a rate of 40%, although those giving everything to a spouse or civil partner are exempt.
Tim Fullerlove, partner at Wilsons, says: “The government’s decision to freeze the nil-rate band until at least 2019 means many more families are likely to find they qualify for IHT in the coming years.
“This is because inflation and rising house prices are not being complemented by a rising nil-rate band. Estates that would in no way have in the past are now being subjected to the 40% tax IHT imposes.”
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.