Inheritance tax accountants in demand as inflation impacts estate values

Inheritance tax accountants play a vital role in estate planning

Inheritance tax (IHT) receipts for April 2023 and May 2023 were £1.2 billion*, which is £100m higher than in the same period a year earlier, according to National Statistics published in June 2023.  Although there were issues with HMRC being unable to accept cheques during Covid-19, which are reflected in historical figures, this is still a significant sum in receipts.

The increase in estates paying inheritance tax is not a new phenomenon. The increase in receipts to HMRC reflects the fact that more estates are liable for inheritance tax, due to a combination of rising asset values (housing price increases, investment wealth growth and the like) and effect of the freezing of the nil rate band.

Clampdown on wealthy estates

HMRC now has a team that specifically targets estates of wealthy deceased individuals to check whether a greater Inheritance Tax liability may have been due than originally calculated by estate executors. Over 13,000 individuals have been embroiled in IHT investigations since 2019 with £326m collected in the year to March 2022. Errors relating to the provision of lifetime gifts, personal possessions being under-valued and falling foul of complex IHT rules account for many of these cases.


Impact of the frozen nil rate band

In general terms, if the value of one’s estate on death is greater than the available nil rate band, then inheritance tax will be due, normally at 40% on the excess.  The nil rate band increased gradually since its inception but has been frozen at £325,000 since 6 April 2009 and will remain frozen until 5 April 2028.  There has been no increase in this nil rate band to take account of rising asset values or to combat the effects of inflation, which has risen to over 10% recently.  Therefore, year on year, increasingly more estates have fallen and will fall into this inheritance tax trap, which is effectively a ’stealth tax’ allowing the Government of the day to increase their take.

Of course, the overall picture is more nuanced, and one must also consider the impact of the residential nil rate band of £175,000 which could also be available to the estate, depending on the individual’s overall circumstances.

So what can be done? Well, any article on inheritance tax has to include the famous quote by the late Lord Jenkins of Hillhead, who once quipped that ‘Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue’.

IHT planning and advice

Although Lord Jenkins may not have perhaps envisaged the nil rate band being frozen for so long, the context of his statement still rings true. With careful planning, inheritance tax can be mitigated or possibly even avoided entirely.   Strategies such as lifetime gifting, trust planning, use of annual exemptions and other allowances together with potentially allocating investments to inheritance tax friendly environments can be deployed in good time to avoid the nasty shock of a potential 40% tax hit.  Planning however should be made in good time to avoid leaving matters until it is too late to take action.

Such planning to mitigate or avoid inheritance tax can be extremely complicated and professional advice from an experienced inheritance tax accountant should always be sought.

Contact us if you require assistance with any aspect of IHT, estate or retirement planning. We have experienced tax professionals and wealth management experts at hand to advise on your individual circumstances.

*Source: National statistics

HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin)

Updated 21 June 2023

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