Understanding Inheritance Tax and Financial Planning - Minimise Your Tax Burden

The money the government receives from inheritance tax totalled £7.1bn for 2022/23, £1bn higher than the same period a year earlier. The Office for Budget Responsibility have forecast this could increase to a record £8.4bn by 2027/28!

The rise in tax receipts can be attributed to multiple factors, with one significant driver being the freeze on the inheritance tax free threshold, commonly referred to as the 'nil rate band,' until at least 2027/28. This coincides with the surge in property prices during the pandemic period, further contributing to the overall increase in tax revenues.

An increase in receipts of this magnitude should act as a warning for people to consider reviewing the value of their estate, including obtaining an up-to-date valuation of any property. Many people are surprised to learn their family will need to find the money to pay the inheritance tax bill before receiving anything from the probate process, adding stress at an already difficult time.

The nil rate band is currently set to £325,000. If the total value of your estate (all your assets minus anything you might owe) exceeds this amount when you pass away, inheritance tax is paid at a rate of 40% on anything above this threshold.

There are other reliefs and exemptions available, depending on your circumstances. For example, an estate may also qualify for the residence nil rate band if a home has been left to direct descendants. This relief can be complex to apply, especially for example if you had downsized before passing away.

If you are concerned you may be in a position where inheritance tax will be due on your estate, proper financial planning will ensure you’re as prepared as possible. Taking proactive steps sooner rather than later increases the likelihood of being able to use completely legitimate methods to minimise any potential inheritance tax burden.

We can assist you in working out the total value of your estate, calculate how much tax your loved ones would potentially owe, explore options with you about managing the potential tax bill and any reliefs and exemptions available to you.

To book a complimentary financial review with an independent financial adviser, please get in touch by calling 0117 3636 212 or emailing office@haroldstephens.co.uk.