Lowes Magazine Issue 127

TAX

HMRC’s continuing IHT tax take

The burden of IHT on families continues to grow year on year and so, is an important part of our forward thinking financial planning. The amount of tax received by the Treasury for the financial year 2022/23 is projected to be £6.7 billion. This is more than double the amount paid ten years ago – £2.9 billion in 2011/12. Predictions in the market are that it could increase to £7.8 billion within the next five years. The figures for Inheritance Tax receipts for April 2023 alone were £0.6 billion, an increase of £0.1 billion when compared with the same period in 2022. The rise in IHT receipts has been primarily driven by increases in property prices and the long-term freezing of the IHT nil rate band threshold. The tax-free allowance has been fixed at £325,000 since 2009/10 and the Chancellor announced in his last Budget that it will be frozen for another five years, until April 2028. The main residence nil rate band – which provides an additional allowance up to £175,000 of the value of a property left to direct descendants – is also frozen until 2028. The allowances double for married couples and civil partners. Despite this, the number of people who paid inheritance tax over the past year also increased, by a significant 24%. The latest HMRC data shows that an estimated 41,000 people were liable to inheritance tax in 2022/23, up from 33,000 the previous year and the highest level in 20 years. It is nearly double what it was in the 2018/19 tax year when only 22,000 people paid IHT. These figures illustrate the simple fact that more estates are becoming eligible for the tax as their personal wealth through property, savings and investments, exceeds the current allowances.

IHT is no longer a tax on the wealthy but is impacting people it was never intended to affect. Therefore, it is important that families plan for the future and how they will address IHT as an issue. Not to do so can lead to families facing overwhelming administrative and financial burdens during a time of already profound emotional stress. We firmly recommend adopting a proactive approach to IHT, to make sure arrangements are as tax efficient as possible. This can include advice around gifting, investing, donating, and a life insurance policy written into trust, as means to minimise or avoid paying unnecessary IHT charges. More drawn into higher income tax bands The Institute for Fiscal Studies has calculated that one in five taxpayers will be paying a higher rate of income tax by the 2027-28 tax year – around 7.8 million tax payers. This is due to the current freeze on income tax thresholds, which rising salaries are likely to breach. One way to help alleviate the tax charge is through pension payments, particularly through salary sacrifice schemes. In these schemes, the employee agrees to a reduction in their salary or bonus that is equal to their pension contribution. In return, the employer will pay in the employee’s total pension contributions. So pensions contributions lower the individual’s salary and tax paid.

Lowes.co.uk

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