Inheritance Tax Collects A Whooping £2.4BN

According to data released today, HMRC has collected £2.4 billion in inheritance tax. Moreover, the Treasury brought in the revenue in receipts in three months to July 2022. This is an increase of £300 million from the previous year’s.

Therefore, experts are suggesting that the inheritance tax is no longer only for the rich. This comes after an increased number of Britons have to pay six-figure bills.

What is an inheritance tax?

It is a tax imposed on a decedent’s estate, which includes their assets, money, and things. There’s generally no inheritance tax to pay if either:

Your estate’s value is below the £325,000 cap.

You leave everything over £325,000 to your spouse, civil partner, charity, or local amateur sports organization.

However, even if the estate’s worth is below the threshold, you may still be required to file a report.

Moreover, your threshold can rise to £500,000 if you donate your house to your grandkids or children. It includes adopted, foster, or stepchildren.

You can transform any unused threshold into your partner’s threshold when you pass away. This applies when you are married or in a civil partnership and your estate is worth less than your threshold.

Inheritance tax rates

The typical rate of inheritance tax is 40%. However, only the portion of your estate that is above the cutoff is subject to the fee.

For example, your tax-free threshold is £325,000, and your estate is worth £500,000. So, 40% of £175,000 (£500,000 minus £325,000) is the amount of inheritance tax that you’ll have to pay as a tax.

Also, if you donate 10% or more of the “net worth” of certain assets to charity in your will, the estate can pay inheritance tax on those assets at a reduced rate of 36%. The net value is the overall value of the estate less any debts.

What are the reliefs and exemptions?

Some gifts you make while still alive can be subject to taxation after your passing. On the other hand, “Taper relief” could mean that the inheritance tax owed on the gift is less than 40%. It also depends on when you made it.

Meanwhile, some assets can be passed on free of inheritance tax or with a reduced cost thanks to other reliefs. For example, Business Relief.

Who makes the payment to HMRC?

Usually one uses the funds from one’s estate to pay the tax to HM Revenue and Customs (HMRC). Moreover, the person who is in charge of the estate is the “executor,” in case there is a will.

Moreover, the people who inherit your estate, or your beneficiaries, typically don’t have to pay taxes on the assets they receive. However, if they receive rental income from a home given to them in a will, they might have corresponding taxes to pay.

On the other hand, if you give away more than £325,000 and pass away within seven years, recipients of your donations can be subject to inheritance tax.

Will there be any changes to the inheritance tax rate?

Both Rishi Sunak and Liz Truss have mentioned that as prime ministers, they would revisit the laws governing inheritance taxes. This can entail eliminating the most despised of taxes. Moreover, we can see a decrease in the 40% rate and raise the threshold. This has remained locked at £325,000 since 2010—or exempting more assets, such ISAs. Alternatively, they can enact an estate tax in the American tradition. That, in its most basic form, essentially sets a limit on the amount that each person can donate tax-free during their lifetime.

Therefore, inheritance tax reform is a possible vote-winner for Rishi Sunak and Liz Truss among Conservative party members. However, it’s difficult to envisage it will be at the top of their agenda in any emergency Budget should they gain power, according to Wealth Club CEO and Founder Alex Davies.

How the changes might affect you?

Cutting inheritance tax is a significant money maker for the Treasury. Meanwhile, it does nothing to help the nation’s rising cost of living crisis. Moreover, IHT brings in about £800 million in tax income each month. This is a significant amount given that 29 million homes are receiving grants of £400 each to help with their energy costs.

Rising home prices and long-term allowance freezes are the leading causes of the increase in the monthly IHT take. Moreover, the impact of freezing allowances would only grow in the coming years due to the high rate of inflation unless the new Prime Minister decides to step in. Even though just 4% of estates currently pay inheritance tax, if the regulations aren’t changed, more and more families face death duties they weren’t expecting.