Families paying inheritance tax reaches 35-year high

Inheritance Planning
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But assistance from the right financial adviser could help minimise IHT costs.

The number of families paying inheritance tax has reached a 35-year high, largely due to escalating house prices pushing up the value of family assets.

According to figures released by the Office for Budget Responsibility (OBR), close to three times as many estates are expected to be affected as were six years ago, with estimates suggesting approximately 40,100 estates will face the levy in the current tax year (2015-16).

Inheritance tax is paid if a person’s estate – their property, money and other various possessions – is worth greater than £325,000 when they die. The rate of inheritance tax is 40% on anything above the threshold, though may be reduced to 36% if 10% or more of the estate is left to charity.

The number of bereaved families facing tax on their inheritance this year will be the most since 1979-80 - Margaret Thatcher’s first year as prime minister - but the figure is likely to rise again next year, with the OBR predicting 45,100 estates will be hit with the charge in 2016-17.

In 2009-10 only 2.6% of all deaths incurred inheritance tax, compared with 7.1% in 2015-16. This rise correlates with sharp increases to the average UK house price; in 2009 one could be expected to shell out an average of £162,103 for a home, but that figure now currently stands at around £204,000. Those receiving estates in London - where average prices rose 64% to £531,000 in the six years to October 2015 – have been hit particularly hard in recent years.

We spoke to David Jolly, financial adviser at Cadogan Wilson, to get his take on the topic of inheritance tax.

“Inheritance tax is a vast subject, but it’s my contention that rich people don’t pay it. IHT is paid by people who didn’t realise they had a problem, or didn’t know of the many ways there are to avoid paying it.

“Ray Jenkins, former Chancellor of the Exchequer, said that inheritance tax is ‘a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue’, yet this is so often quoted that it is nigh on apocryphal.

“There are ways to avoid having to pay inheritance tax, but to do so professional advice is required. There are a number of bear traps you could fall into should you try to do it yourself.”

Are you worried about inheritance tax, or looking to learn more about what will happen to your estate when you die? An independent financial adviser could help you. Search the VouchedFor database to find top-rated advisers in your area.

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