Death taxes are set to double to a massive £10bn by 2030, according to recent new analysis – almost double the Inheritance Tax (IHT) receipts for the 2018/19 tax year
The prediction by financial services firm Canada Life came as it was revealed the Treasury benefitted from record IHT receipts of £5.2bn in 2018 – which were also up £200m on the previous year.
However, while IHT receipts are on the rise in a big way, it appears that people’s understanding of the system and how it could help them pass wealth onto their beneficiaries isn’t so high.
Take the survey last month from wealth management specialist Quilter, which revealed that only 37 per cent of those asked were aware of IHT rules.
And under half of those quizzed knew about basic IHT rules around gifting or the nil rate band.
However, 60 per cent thought the rules likely to be important when it came to how they could pass wealth on.
And those percentages really highlight a big disconnect between the information available and understanding the practical implications for individuals and their families.
It is also why the forthcoming review of IHT regulations from the Office of Tax Simplification (OTS) can’t come soon enough.
The OTS is the independent adviser to government on simplifying the UK tax system, to make it easier for the taxpayer.
It is set to deliver the second part of its review of IHT regulations shortly, following an initial report in January that looked largely at administrative issues.
The exercise is aimed at simplifying how IHT is implemented, with the upcoming report expected to focus on specific areas of change.
With additional complications like the residence nil rate band still focusing on the nuclear family, the IHT regime appears out of step with modern families and concerns about inter-generational wealth.
A House of Lords committee on intergenerational fairness has already reported across a range of issues from housing to pension credits and estate tax.
Among a raft of recommendations, they called IHT “capricious and not fit for purpose”. Going back to fundamentals, the Lords report questions why and how assets should be taxed at death or on transfer to the next generation.
The report suggested options such as a capital receipts tax payable on income received by beneficiaries or exempting certain assets from IHT if earmarked for first home purchase by a family member.
Whether any of these ideas come to fruition, and whatever the awaited OTS report recommends, there are ways in which the existing IHT regime can currently benefit your own estate planning and ensure a fairer distribution of your assets through your family.
The £3,000 a year annual gift allowance is good place to start. So is reviewing your will and making sure your assets will be dispersed the way you wish.
The first question you should be asking is: “Is my estate planning up to date?”
To discuss any issues around IHT or other tax issues please contact me on 01772 430000.