The amount of inheritance tax paid in the last year has reached a record high at £4.84 billion
HMRC has revealed that the amount of inheritance tax paid in the last year has reached a record high at £4.84 billion. Tax payments increased by 4% despite the inheritance tax threshold remaining the same which is an indication that there has been an increase in household wealth.
With most estates the largest proportion of wealth is property. However, this is not the case for those at either end of the spectrum. The wealthiest families often have investments that exceed the value of any property they own, whereas the poorest families tend to not own their home and have their worth in cash.
From 2020, the inheritance tax threshold will be amended each year to react to asset price rises and inflation, just like it was prior to 2009. Until 2020, estates will face a rising tax burden.
“There is a long time between now and 2020 for things to be changed. It is unreasonable for people to be taxed on indexed gains, it is just unfair,” said Danny Cox, head of financial planning at Hargreaves Lansdown.
However, there is a new system coming into place this year which may help ease the tax burden on some households. The new system cuts the amount of tax paid on family homes when they are given to direct descendants. At first the additional zero-rate band will be £100,000 but will rise to £175,000 by 2021.
What is inheritance tax?
Inheritance tax is a tax on the estate of someone who has died. The estate includes property, money and possessions. The inheritance tax threshold is £325,000 so if the value of your estate is below this then there will be no inheritance tax to pay. Similarly, if you leave your entire estate to your spouse or civil partner, or a charity or community amateur sports club there would be no inheritance tax to pay.
Any gifts you give away that total more than £325,000 may be subject to inheritance tax if you die within 7 years.
How much inheritance tax do you pay?
The standard rate of inheritance tax is 40%. This is paid on anything over the £325,000 threshold. If you leave more than 10% of your estate to charity you can pay a reduced rate of 36%.
Inheritance tax and probate
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