Inheritance Tax: Receipts Rise Again
According to HMRC’s latest statistics, inheritance tax (IHT) receipts for April to November 2021 are just over £4.1 billion, which is £0.6 billion higher than in the same period a year earlier.
Back in March, the Office for Budget Responsibility (OBR) projected 2021/22 IHT receipts to reach £6 billion. The OBR’s 27 October forecast kept the 2021/22 IHT receipts at this £6 billion figure, but posted the following increased forecasts for future years:
However, with the IHT take for the first eight months of this tax year already at £4.1 billion, it’s possible that the final total for 2021/22 could be above the OBR’s £6 billion estimate. Both July and August’s IHT receipts were already the highest monthly amounts received from the tax, at £571 million and £576 million respectively.
According to HMRC, higher receipts in October 2020, November 2020, and March to August 2021 are expected to be due to higher volumes of wealth transfer that took place during the COVID-19 pandemic, though HMRC says that it cannot verify this until full administrative data becomes available. These increased IHT receipts provide another reminder of the importance of IHT planning.
“July and August’s IHT receipts were already the highest monthly amounts received from the tax, at £571 million and £576 million respectively.”
Inheritance Tax – End of Tax Year Planning
Inheritance Tax: Receipts Rise Again
Everybody has an annual exemption of £3,000 to use each tax year. Any unused annual exemption can be carried forward for one year only. So, use any available annual exemption carried forward from last year before 6 April 2022.
There’s no limit on individual gift payments per tax year
The annual £250 per donee exemption cannot be carried forward. A person can make as many outright gifts of up to £250 per individual per tax year as they wish free of inheritance tax, provided that the recipient does not also receive any part of the donor’s £3,000 annual exemption.
Regular gifts can be made out of your income
For those who have income that is surplus to their needs, it may also be appropriate to establish arrangements whereby regular gifts can be made out of income in order to utilise the normal expenditure out of income exemption. An ideal way of achieving this is to pay premiums into a whole of life policy in trust to provide for any inheritance tax liability.
The inheritance tax nil rate band and residence nil rate band are frozen at £325,000 and £175,000 until 5 April 2026, and the residence nil rate band taper will continue to start at £2 million. Therefore, as wealth continues to rise, planning to mitigate inheritance tax should be started as early as possible.
“If you are concerned about Inheritance tax please get in touch. Your adviser can discuss your specific circumstances and the various ways of mitigating IHT that best suit you needs and objectives.”
Making Inheritance Tax Gifts
Clients that can afford to make substantial gifts out of income may like to get that planning up and running sooner rather than later in case any rule change occurs in future – in the hope that if a rule change does occur, existing arrangements will be protected.
HMRC recently published new guidance on Inheritance tax on gifts. It includes a number of useful examples, and covers the following points:
- List all gifts
- When the total gifts are over the inheritance tax threshold
- Identify gifts that are exempt
- Work out the value of gifts that are not exempt
- If tax is due on gifts
- Other reliefs that may apply
- Telling HMRC about the value of gifts and paying tax
You can read the full guidance here.
Of course, rather than reading the HMRC guidance, if you are concerned about Inheritance tax please get in touch. Your adviser can discuss your specific circumstances and the various ways of mitigating IHT that best suit your needs and objectives.