“The IHT nil rate freeze has been worth its weight in gold. For the treasury”

“The IHT nil rate freeze has been worth its weight in gold for the treasury” with IHT receipts up 14% in 2021/22″ Mazars Top Tips

 
Paul Barham, Partner at Mazars commented: “The IHT nil rate freeze has been worth its weight in gold for the treasury with IHT receipts up 14% in 2021/22, and the number of estate liable also up.

This, in combination with high asset values across property and investments, means HMRC is likely to break more records in the coming years.

“Although, the future of IHT is under the spotlight with rumours that it could be scrapped altogether come 2024, you can’t plan your finances on speculation and people should look at ways that they can reduce their potential IHT liability. Maximising personal gift allowances, and doing so early, having a valid will and using clear expression of wishes documents are steps that are often overlooked. The latest figures are a timely reminder to pay these some attention.”
 

Steps to help plan for IHT

 
· The power of gifting
 
“Gifting is an efficient and effective way of passing wealth to loved ones while at the same time reducing the value of your estate for inheritance tax purposes. Lifetime gifts are immediately exempt if they fall within the Annual Allowance (£3,000 pa) or Small Gift (£250 pa) exemptions.

If you have a larger disposable income you might want to consider whether you might qualify for the normal expenditure out of income exemption which has no limit. Larger lifetime gifts can also be made but they do come with some rules, mainly a seven-year clock.

You make a gift of any amount but if you pass away within seven years of making that gift, then some or all that gift could be classed as part of your estate for IHT calculations.”
 
· Consider Trusts or a Family Investment Company
 
“If you don’t wish to make outright gifts, you can make use of a structure such as a Trust or Family Investment Company. This can have the effect of removing wealth (and future growth) from your estate while still enabling you to have control over the assets, as well as offering an element of asset protection in the event of a failed business or relationship breakdown. There are lots of different types of trust that each come with their own tax rules so it’s best to consult a specialist to ensure you choose the one that best suits your and your beneficiaries’ future needs.”
 
· Pensions as IHT tools
 
“Pensions can be a valuable tool when passing down wealth because they sit outside your estate for IHT purposes and as of April 2023, the lifetime allowance has been removed, so there is no limit on how much you can save over your lifetime.

If you have assets inside and out of a pension plan, you’ll want to consider when to drawdown from your pension and whether to also consider using non-pension assets to meet the full cost of everyday life.”
 
· Make a will
 
“A will is one of the most overlooked financial documents and is perhaps the most essential thing you can do to ensure your estate goes to who you want and that your wishes are carried out. Without a will, your estate will be distributed under the intestacy rules. This can mean that some of your estate could be subject to IHT that could have been avoided with legitimate will planning.”
 
· Seek some help
 
“Inheritance planning is notoriously complex. But there are advantages to starting earlier than you think is necessary. Seek the support of an adviser that you trust and one that you think will have your best interests at heart. While no one really wants to think about the need to pass on wealth, it can be of great benefit to your loved ones to get plans in place early.”