Inheritance tax receipts hit a new record high of £5.2 billion

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

Yesterday HMRC released the latest statistics on inheritance tax. 

Revenue generated from inheritance tax last year has increased by £388 million compared to the previous year and reached a new high of £5.2 billion.  

This could be a painful kick in the teeth for the 72% of high net worth individuals who in our recent survey described inheritance tax as “unfair” or “grossly unfair”. 

What’s more, despite changes being introduced to make it easier to pass the family home on to the next generation free of inheritance tax, IHT receipts are still forecast to continue to rise and reach £6.4 billion in the 2022/23 tax year.  

Read more on how IHT rules work »

However, inheritance could potentially face an overhaul in this year’s Budget, after chancellor Philip Hammond announced a review of this “particularly complex” tax.

We hope the review will indeed result in a much-needed simplification of the current system, rather than being used as a back-door way to raise taxes.

How could you reduce a potential IHT bill?

The good news is there are still a number of steps individuals could consider that could reduce a potential IHT bill. For instance:

  • Make a will – if you don’t, intestacy rules will determine how your estate is distributed and that’s unlikely to be the most tax efficient way. 

  • Give money away – gifts given out of one’s regular income can be free from inheritance tax on day one irrespective of the amount given, provided that’s not deemed to affect the giver’s standard of living. Certain smaller gifts can also be immediately IHT free. Larger gifts (more than £3,000 a year, as a rule of thumb) can be completely IHT free, but usually only after seven years. Of course, once you give the money away, you have lost control. If you need it back for an emergency, for instance, that’s not an option.

  • Establish a trust – a trust is an often-complex legal arrangement. Usually, when you put any assets in a trust, you no longer own them, so they’re not included in your estate. However, as is the case with larger gifts, a seven-year rule applies. In addition, as with gifts, you lose access to that money. 

  • Invest in companies that qualify for Business Property Relief (BPR) – your investment should become inheritance tax free after two years, provided you still hold it on death. Unlike giving the money away, you can retain control, so you could take money out if you needed. On the flipside, the companies that benefit from BPR tend to be smaller unquoted companies or AIM-listed companies, so they’re riskier and more illiquid than larger ones and capital is at risk. Because of this, this type of investment should only be considered by experienced investors. Read more on BPR »

  • Invest in an AIM ISA – contrary to what many think, ISAs are not inheritance tax free. When you pass away, up to 40% of your hard-earned savings could line the Government’s pockets instead of your loved ones’. AIM ISAs are an increasingly popular way to prevent this. They invest in AIM-listed companies that qualify for BPR, so after two years they should be IHT free. On the flipside, AIM companies can be riskier, more volatile and illiquid than those quoted on the main stock exchange and capital is at risk. So, this type of investment should only be considered by experienced investors. Read more on AIM ISAs »

This article is a marketing communication. It is not advice or a personal or research recommendation. It is a very short summary of a very complex subject, so you should not make – or refrain from making – any decision based solely on the content of this article or website.  If you are at all unsure, please seek specialist financial or tax advice. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.