Record year for Inheritance Tax

The amount of Inheritance Tax collected by HMRC hit more than £5 billion for the first time in 2018 - up 8% on the previous tax year and this trend looks set to continue. However, there are ways you can plan ahead to ensure your estate is as tax efficient as possible, as Calvin Healy explains.

Inheritance Tax revenue is on the rise and it’s affecting more people than ever before. This is hardly surprising given the increase in property values over the last decade, coupled with the fact that the standard nil rate band has remained static. The introduction of the main home nil rate band has begun to take effect, but unsurprisingly, does little to halt the increase in revenues.

In view of this, it’s important to consider your position and plan ahead to ensure that your estate is as efficient as it can be for protecting and passing wealth to future generations.

Here are our top five tips:

1. Make sure you utilise nil rate bands fully

Careful planning is required around the availability of the standard nil rate band and the main residence nil rate band. The structure of the legislation, particularly around transferability of unused bands and the additional main residence nil rate band, is complex and therefore, it is essential to seek advice to ensure valuable allowances are not lost.

2. Making use of available exemptions

The most straightforward and simple way to plan for Inheritance Tax is to make use of the available exemptions. The following gifts can be made free of Inheritance Tax:

  • Small gifts to the same person up to £250 in any tax year. These can be made to as many people as you wish.
  • Gifts in consideration of marriage or civil partnership. The exemption limits are £5,000 made by a parent, £2,500 by a grandparent and £1,000 by anyone else.
  • The first £3,000 of gifts made in any tax year. This is known as the Annual Allowance and there is an added element in that any unused allowance from the previous tax year can be added to your allowance for the current year, resulting in a £6,000 exemption.

3. Make gifts out of surplus income

Gifts out of income can be made free of Inheritance Tax. To qualify, the gift must be part of your normal expenditure and, taking one year with another, made from surplus income so that your current standard of living is maintained. Records should be kept in support of any claim.

4. Ensure your business and its assets qualify for business property relief

Business property relief can automatically exempt (or partially exempt) the value of your own business or value of business assets you own when you die.

As the relief is very generous, it is an area that is scrutinised constantly by HMRC. The legislation is complex and detailed conditions apply. Therefore, it is highly recommended that your business and business assets are reviewed to ensure they are structured efficiently for Inheritance Tax purposes.

5. Use of Trusts

Finally, the use of Trusts can be an efficient way to protect and control family assets and, if planned properly, can also be efficient for Inheritance Tax purposes.

For further information and guidance, please contact Calvin Healy on 01225 325580 or email