IHT receipts rise by 53%; individuals struggling to understand tax rules

Written by Adam Cadle

Inheritance Tax (IHT) receipts have reached £5.2bn up from £3.4bn five years ago, new analysis of government statistics has revealed.

Charges on discretionary trusts have hit £180m, up from £80m five years ago.

The average estate that attracted IHT has risen from circa. £1.1m from just over £1m five years ago, with 50% more estates being subject to IHT, rising from 16,000 five years ago to 24,500 this year.  

The average IHT level per estate has reached £179k, up from £166k five years ago.
Separate research conducted by the company on estates subject to IHT found that 76% of the estate was accounted for by property and the remaining 24% of other assets, mostly cash and investments.
Hoxton Capital Management managing partner Chris Ball said the company’s research also found however, that 62% of individuals did not understand IHT, and were unprepared for it as the rules were perceived to be too complex.

An additional 21% of respondents thought they understood the rules but were unable to provide detailed explanations.
“There are ways for individuals to reduce the size of their estate for Inheritance Tax by structuring their assets in a more tax efficient way,” he explained. 

“This can include holding properties in limited companies and making use of Inheritance Tax provisions from Business Property Relief, utilising trust structures, and also helping people understand gifting rules so they can gift more effectively to loved ones.”

“Other individuals have found it attractive to convert their pensions into defined contribution arrangements and use these as a family asset,” Ball continued.

“We can look at reducing the amounts in their estate and leaving pensions to their children. With multiples as high as 40x on some defined benefit pension plans, this can be an extremely efficient way to pass assets down through the family. Obviously tax will continue to apply if the individual passes after the age of 75, but this can still be reduced by taking from the pension over a number of tax years.”

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