Inheritance tax: Britons warned of ‘greatest threat’ to bill as receipts rise by £700m

Figures released by HMRC today show that the Treasury raked in £5.3billion in IHT receipts in the months from April to December 2022. This is £700million more than in the same period a year earlier, continuing the upward trend.

The Government’s IHT take seems to be increasing thanks largely to years of house price increases, especially in London and the south-east, pushing families that wouldn’t probably consider themselves wealthy, over the threshold.

Inheritance tax of 40 percent is usually chargeable if one’s assets exceed a certain threshold, after deducting any liabilities, exemptions and reliefs.

The threshold (nil rate band) has been £325,000 per single person since April 6, 2009 – and will stay frozen at this level up to and including 2028-29.

The revenue generated from IHT plays an important part in the Government’s spending programme.

While the average bill was £216,000 in 2019/20, research conducted by Wealth Club shows the average IHT bills could reach £304,567 by 2025-26 and £345,084 by 2027-28.

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With a little planning, there are “a number of perfectly legitimate ways to reduce your liability”.

Alex Davies, CEO and founder of Wealth Club said: “Contrary to popular belief, inheritance tax doesn’t just affect the super-rich, many who would not consider themselves wealthy at all will also bear a considerable burden.

“Pensions can be passed on to the next generation relatively tax efficiently. The greatest IHT threat probably comes from where you least expect it: your ISA.

“Contrary to what many think, ISAs are not IHT free. So, if you do nothing, up to 40 percent of your long-term savings could eventually be eaten up by tax.

“An alternative is to invest in an AIM ISA, a managed portfolio of AIM shares that can be IHT free after two years. You still get the ISA benefits of tax-free income and growth for as long as you live, but you don’t need to worry about IHT on top.”


He explained that if people are prepared to take more risk, they might consider investing in early-stage businesses through EIS and SEIS.

He said: “Not only are they very tax efficient, but also their money goes to entrepreneurial companies, which is great for economic growth and job creation.”

Mr Davies suggested how people can “legitimately” reduce their bill.

Make a will
Making a will is the first step people can take. Without it, their estate will be shared according to a set of pre-determined rules. That means the taxman might end up with more than its fair share.

READ MORE: Inheritance tax: Britons warned of ‘strict rules’ when leaving property to your children 

Use the pension allowance

Pensions are not usually subject to IHT for those under 75 years old – they can be passed on tax efficiently and, in some cases, even tax free. If a person has any pension allowance left, make use of it.

Set up a trust

Trusts have traditionally been a staple of IHT planning. They can mean money falls outside an estate if the person lives for at least seven years after establishing the trust. The related taxes and laws are complicated – a person should seek specialist advice if they’re considering this.

Back smaller British businesses
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) offer a generous set of tax reliefs. For instance, SEIS offers up to 50 percent income tax and capital gains tax reliefs, plus loss relief if the investment doesn’t work out.

But EIS and SEIS investments also qualify for Business Property Relief (BPR), so could be passed on free of IHT after two years.

Use gift allowances

Every year individuals can give up to £3,000 away tax-free. This is known as the annual exemption. If people didn’t use it last year, they can combine it and pass on £6,000.

Britons can also give up to £250 each year to however many people they wish (but only one gift per recipient per year) or make a wedding gift of up to £5,000 to their child; up to £2,500 to their grandchild; up to £2,500 to their spouse or civil partner to be and £1,000 to anyone else.

Beyond these allowances, people can pass on as much as they like IHT free. So long as they live for at least seven years after giving money away, there will be no IHT to pay.

Leave a legacy – give to charity
If someone leaves at least 10 percent of their net estate to a charity or a few other organisations, they may be able to get a discount on the IHT rate – 36 percent instead of 40 percent ­– on the rest of their estate.

Spend it.