For the year ended 5 April, the government received £6.1 billion in inheritance tax and it is expected this will rise to £8.3 billion by 2026/27, although Mr Tuffin said in a recent insight report that this figure may prove to be low in the current inflationary climate.
“The Government is under pressure to increase the tax take and inheritance tax is the perfect target where the Government can publicise that a married couple leaving their family home to their children can gift up to a £1 million without inheritance tax applying,” he said.
While house price growth has slowed in London the average price of a London home is now over £500,000 and other areas of the country such as the Midlands have growth in house prices currently around 12 per cent.
With the residential nil rate band frozen at least until 2025/26 and possibly after that more and more estates are falling with the IHT net, the average single parent in London passing on the family home can expect an inheritance tax bill of just under £10,000. Add to this investments and other assets, and inheritance tax bills are destined to increase significantly.
Mr Tuffin said people with second homes will become much more likely to face an inheritance tax charge on their total estate.
“IHT is an area where tax planning can be very effective, however a lot of the planning takes some considerable time to be affective,” he said.
“With gifts there is normally a seven-year rule when the asset can still be considered part of the estate and therefore subject to IHT. Early planning is therefore essential. There are rules to counter an asset being gifted and yet still used by the person giving it. Trusts can prove useful in certain circumstances but again involve in most cases, the donor completely giving away the asset.”
He advised that a key area for tax planning are those estates valued between £2,000,000 and £2,350,000.
“Such estates are potentially facing a 60 per cent tax rate on that part of the estate due to the loss of the residential nil rate band at the rate of £1 for every £2 in value,” he said.
“The opportunities for inheritance tax planning are many and with proper advice and support significant amounts of inheritance tax can be saved allowing greater support for the next generation many of whom are facing additional pressures with the repayment of student loans over many years.”
