The Office for Budget Responsibility (OBR) has updated its projection for the period between 2016 and 2022. New figures show that the estimated Inheritance Tax (IHT) to be paid during that time will be £900 million higher than previously stated.
This is fuelled by a higher IHT income than anticipated during the 2015/16 and 2016/17 tax years. 2015/16 estimates were under by £100m, whilst 2016/17 saw income of £300m more than anticipated.
Throughout the rest of the period, the government expects to receive an additional:
- £200m in 2017/18
- £200m in 2018/19
- £100m in 2019/20
There are two schools of thought surrounding the growth of IHT receipts; environment and preparation.
The first concludes that the growing population is leading to an increased death rate. Yearly deaths of over-65s have risen from 476,000 to 502,000 in 2017. With more estates being divided and taxed, the government will inevitably benefit on a larger scale.
The second, taking steps to prepare your estate before you pass away, can limit the IHT liability and increase the amount your loved ones will receive. Many people are unaware of the effects of IHT on the assets they will leave behind, with a recent study by WAY Investments showing that 48% of over-50s describe their personal understanding of IHT as ‘not very good’ or ‘terrible’. The research also revealed that:
- 48% did not know that the IHT rate was 40%
- 25% did not know whether their assets would be liable for IHT
- 22% did not know that ISAs would incur IHT liability
These figures are worrying, as not knowing this information could be preventing people from taking the necessary steps to reduce the IHT liability on their estate. Meaning that their families and loved ones will receive less than intended.
Three steps to reduce your IHT liability
- Know your current position
Knowing what your estate is worth now, means that you can make plans in both life and death to reduce the IHT liability felt by your beneficiaries. Knowing your current financial position means that you can plan ahead and enjoy the lifestyle you want, without compromising.
- Make a will
According to WAY’s research, 35% of over-50s do not have a will. Additionally, of those who do, 47% have not updated it in the past five years.
Making a will is the most effective way to instruct the way your estate is distributed. By ensuring that your property, assets and money goes to the people, businesses or charities you wish, you can put IHT-efficient plans in place. This means that your loved ones lose as little inheritance as possible and see the maximum benefit.
- Seek advice
A professional financial adviser will assess all IHT-efficient methods and strategies against your circumstances and suggest the most effective plan for you. In addition, an ongoing relationship with a professional will make legal and financial processes easier throughout your retirement, and for those you leave behind.
For more information, or to discuss your retirement, IHT and estate planning needs, get in touch with Ben.