IHT threshold to be frozen for another two years

The revenue generated for Government coffers from IHT has been rising consistently in recent years. This is because the value of an estate that can be passed to beneficiaries before IHT is payable has been frozen since 2009. Inflation and soaring property prices means HMRC has insidiously increased what it takes away from bereaved families. IHT can be controversial but, whatever your views on the tax are, it exists. Despite massive increases in the amount of tax received recently, there are various financial planning tools and government sanctioned schemes available to manage or mitigate how much IHT has to be paid from an estate. Making gifts to your intended beneficiaries before the inevitable happens is an option, although this takes a lot of forward planning and several years to be effective. If the clock is ticking, investing in companies that qualify for business relief can reduce the amount of IHT due on an estate. These types of investment are risky, though, and won't be suitable for everyone. Using trusts is also a good way to avoid IHT. Again, this can be a complex area and won't be appropriate in all circumstances. Saving into a personal pension, which is legally a trust, allows you to have a lot of control over your money while keeping it out of your taxable estate and making it potentially available to the next generations. Donating a proportion of your estate to charity can also reduce the rate of IHT from 40% down to 36%, which is significant. Each of these options comes with an assortment of caveats and risk warnings so it's important to fully understand the intricacies before doing anything. Unfortunately, the rules around IHT aren't simple. The various methods of mitigating the tax bill on an estate are also quite complicated and risky. This means that some very effective tools go unused by the general public. If your estate might be caught in the inheritance tax net, speak to a professional financial adviser who can explain its impact on you and implement an appropriate strategy to manage it. Within the financial planning profession, IHT is often called a voluntary tax. More people need to start engaging with advisers to understand what can be done to preserve their wealth for the generations to come. Bear in mind the younger population is needing more and more help to keep their heads above the choppy financial waters.

A voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue is how former Labour Chancellor, Roy Jenkins, once famously described Inheritance Tax. More than any other tax that we all face, IHT mitigation is all about the planning. There are many ways to reduce this tax, from gifting to setting up trusts. Also, don't forget that money in your pension is also not subject to IHT. The key is to start early and plan well and you can still very much control if you want to give away all your money to your heirs or HMRC. Having said all of that, the easiest way to mitigate IHT is to spend it all whilst you are alive and live the fullest life you can imagine.

The Inheritance tax nil rate band (or the value of an estate that is taxed at zero) has been at 325,000 since 2009. Earlier this year, the government agreed to freeze it until 2025/2026 and now the talk is it will be frozen for a further two years. This is not a major change or surprise if truth be told. Stealth taxes, or tax allowances not increasing in line with inflation, are a way to raise revenue without significant political cost. Expect to see more of these in the budget on November 17th to plug the fiscal gap. Inheritance tax is very much a voluntary tax. It can be mitigated significantly with the proper wills and planning in place. Lifetime gifts, trusts, taking out whole of life insurance or investing in business relief schemes can all help reduce the tax burden. Another way of reducing it, of course, is to spend your money when you're alive and enjoy life.

IHT is referred to as the "voluntary tax", as there are many ways to mitigate, reduce or eliminate IHT liabilities. Sadly, the majority of them rely on you being wealthy enough or trusting enough of your family. With a potential combined IHT nil rate band and main residence nil rate band of £500,000 (£1m for married couples and civil partnerships), for those with less than £2million in total, this is not an issue that is going to be a big vote loser in many areas. However, in the south of England this is a very real issue for many families that are not "wealthy" but have simply benefitted from living in areas of high house price growth. If you have significant assets aside from your home you can use a number of investment vehicles or trusts to mitigate or even remove the potential IHT liability altogether. If your main asset is your home, you are far more restricted in what you can do but there are options, so always speak to an estate practitioner. These can be lawyers or wealth/financial advisers. The key to successful IHT planning is to act early, as the longer you delay the fewer options that will be available to you and ultimately increase the potential IHT bill payable by your beneficiaries.

The IHT threshold has not increased since 6 April 2009 and is a stealth tax. It used to be that only the super rich needed to pay IHT and now we are seeing more and more middle class families being dragged into it. It is unfair on those who work hard and pay every other tax all their lives, to then be penalised again just for wanting to pass something onto their children. There are things financial planners can do to mitigate this tax, however the point is that we should not have to.