Legal News | 10.08.23
IHT: Love Island or Big Brother?
Inheritance Tax (IHT) can seem like a reality TV star; it’s not one of the bigger taxes in terms of receipts but it does have a tendency to grab headlines. So, let’s look at some of the fake news as against the reality.
- Income tax (£249 billion), NI (£178 billion) and VAT (£160 billion) are the A list big hitter taxes with IHT raising £7 billion in the 2022/23 tax year[1]. So while IHT receipts are increasing, IHT is certainly not up there with the A list.
- The standard IHT threshold has been frozen at £325,000 since 2009; if it had kept pace with inflation it would now be closer to £500,000[2]. The fact that the threshold has not increased does mean more estates increasingly fall with the IHT net.
- Many people, however, still do not realise that a married couple with children who own a house can[3] leave £1 million of their combined estates to their family before there is any charge to IHT.
- When IHT grabs headlines, it’s often with the claim that it is unfair to charge a tax on assets that have already been taxed during your lifetime. As with so much celebrity coverage, we have to ask whether that’s the full picture. Many taxes can be viewed in the same way, for example you probably use your income (subject to income tax) to buy your groceries (subject to VAT) and maybe even to buy a bottle of wine (subject to alcohol duty).
- Like all good celebrities, IHT has some skeletons in the closet. In particular, Business Relief and Agricultural Relief can be incredibly valuable reliefs and see some of the highest value estates benefit from relatively low charges to IHT.
- Any good celebrity knows that good causes can help boost your profile, IHT offers charitable relief for gifts to qualifying charities. It is worth noting however that prior to 2023, IHT charity relief was more widely available and covered the EU but that has now been restricted.
- Finally, while not quite a 7-year-old love child, regular readers will know that 7 years is important when it comes to IHT.
[1] Commons Library Research Briefing 5 June 2023
[2] According to Bank of England inflation calculator, £325,000 in 2009 is equivalent to £493,584 in June 2023
[3] Provided their estates are eligible for full nil rate bands on their deaths and Residence Nil Rate Bands
