MEZIESBLOG

Inheritance tax receipts surged to a record high last year due to the government freezing the threshold at which you start to pay.

Official figures show the government received £7.5bn in inheritance tax (IHT) receipts in the financial year to the end of March – an increase of £400m on the same period the previous year. 

(More widely, total tax receipts were £827.7bn – £39.1bn higher than the same period last year – due in part to inflation and other tax threshold freezes.)

Inheritance tax is a tax on the estate of someone who has died – including all property, possessions and money – and is only charged above the tax-free threshold of £325,000. 

This threshold has been frozen by the chancellor until 2028.

So, with inflation boosting the value of people’s estates, more people are being dragged above the threshold.

The standard inheritance tax rate is 40%. 

Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, says more families “can expect to be caught in its net”.

So what can be done to ensure families can keep their wealth? 

Use the inheritance tax spouse exemption

Mr Halberda says if you leave your entire estate to your spouse or civil partner, there will be no inheritance tax to pay – even if its value exceeds £325,000. 

Make a will

Doing this can mean you can distribute assets to take advantage of tax-free allowances. 

Use trusts

“Assets in trusts are no longer in your name and therefore not considered when valuing your estate for inheritance tax,” Mr Halberda says. 

Gift giving 

Gifting money or assets to loved ones before you die can avoid inheritance tax, but there are limits on how much you can give away and who to. 

Gifts to charity 

Leaving gifts to registered UK charities in your will is exempt from inheritance tax.