IHT bills will fall thanks to marriage incentives - and careful planning
Inheritance Tax (IHT) remains one of the most controversial taxes, however, with several government incentives in place, the taxman might actually find himself out of pocket for the first time in 10 years.
Bringing in a massive £5.4 billion in 2017-18, there’s no doubt that it is one of HM Treasury's most lucrative tax. But, for the first time in over a decade, IHT bills are actually falling. In fact, in the year to April 2020, IHT payments amounted to £5.16bn - considerably down on the 2017-18 figure. HMRC has said here ends a decade of IHT increases, which netted the Treasury a record £2.72 billion in 2010.
One reason for the fall in IHT bills is thought to be due to some generous tax reliefs for married couples and civil partners. In 2017, the Government introduced new legislation that allowed married couples to pass on a home to a direct descendant up to the value of £1 million, phased in until 2020. Previously, this threshold stood at just £325,000, after which a 40% tax would be applied.
Plus, widows and widowers can inherit the whole of their spouse’s estate with no tax to pay - no matter how large it is. Comparatively, an unmarried person can only pass up to £325,000 tax free before a 40% charge becomes applicable.
What’s more, spouses and civil partners can transfer any unused allowance - for example to protect the mother if the father dies, allowing her to pass the estate on their children on her passing.
Whilst it is deemed the most controversial of taxes, it is easy to see why more couples are choosing to marry or enter into a civil partnership. However, as with anything, financial planning must go through all the right channels. Talk to a lawyer about your estate planning and talk to your family about any wishes you have for your estate on your death. Make sure you document everything in a will and that will is always kept up to date.
It is also worth executors seeking legal advice before IHT is paid to ensure that the executors are claiming all or any reliefs available depending on the circumstances. We’ve come across a number of clients who have fallen foul of complicated form filling, and even paid too much inheritance tax, so it is worth asking for advice.
For more information about estate planning, will drafting or help with IHT contact the Private Client team at Downs Solicitors.