HM Insights

Record amount of inheritance tax collected by HMRC in past year – what exemptions are there?

HMRC collected £5.2 billion in inheritance tax (IHT) in 2017/2018. This is a record amount for HMRC and shows a £400 million increase on the previous year. This is despite the introduction in April 2017 of the Residence Nil Rate band, giving individuals an additional allowance in respect of family homes.

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Subject to certain exceptions, IHT is charged on estates which exceed the Nil Rate Band (NRB) which is currently £325,000. Estate in excess of this threshold is taxed at 40%. With careful planning it may be possible to mitigate the tax due. Some of the exemptions and reliefs have been noted below:

Spousal Exemption

Married couples can pass assets to each other during life or on death without incurring an IHT charge. Spouses are also able to make use of each other's NRB on second death meaning a potential £650,000 of joint estate can pass free of IHT.

Gifting

  • You can gift up to £3000 each year free of IHT. You can also carry forward the previous year's unused allowance meaning £6000 can be gifted in that tax year.
  • You can make small gifts of up to £250 per person each year.
  • You can gift up to £5000 for a child, £2500 for a grandchild and up to £1000 to any other person when they get married.
  • Regular gifts of surplus income can be IHT free provided a pattern of gifting can be established. The gifts cannot impact on your standard of living.
  • Gifts exceeding the annual allowance will be potentially exempt from IHT provided the gift is made on an absolute basis and the donor survives seven years after making the gift.
  • Donations to registered charities made either during life or on death are exempt from IHT. A bequest of at least 10% of the net estate to a qualifying charity will secure a reduction in the rate of IHT from 40% to 36%.

Reliefs

  • Agricultural Property Relief and Business Property Relief – in certain circumstances, relief can be applied to agricultural property and trading businesses.
  • Residence Nil Rate Band – when certain conditions are met, a potential additional allowance of £125,000 (18/19 tax year) can be applied where property passes to direct descendants (e.g. children or grandchildren).

Get in touch

With careful planning, IHT charges can be significantly minimised or even eliminated. If you feel you could benefit from IHT planning please get in touch with a member of the Private Client team or your usual Harper Macleod contact.