People tend to have some varied views about the subject of Inheritance Tax and about how bothered they are about trying to reduce the amount due on their estate by undertaking Inheritance Tax Planning.
Either they feel that it is a horrible tax that deprives the next generations of hard-earned money and wants to do everything possible to mitigate or avoid (avoidance is legal, its evasion that isn’t!) paying the tax.
Or they might take a more relaxed view along the lines of, “my children are going to inherit far more than I ever did even after the tax has been paid.”
This latter group are sometimes described as people who like HMRC more than they do their kids! After all, inheritance tax on death has a rate of 40%, and that means two children inheriting will only get 30% each!
Inheritance tax has also been described as a “voluntary tax” but to avoid it all together generally requires some quite drastic action. For example, giving away a good deal of your wealth while you are alive and then living a full seven years after.
Governments of different political persuasions have different views of inheritance tax.
Some feel it wrong that wealth can cascade down the generations others see it a perfectly reasonable for citizens to be able to pass on wealth intact to children and grandchildren.
Not all of a person’s estate is taxed on their death.
Each person is entitled to the “nil rate band” part of their estate that is untaxed. Currently, that is an amount of £325,000.
A spouse can inherit the unused nil-rate band of his or her spouse on their death, so a total of £650,000.
In recent years the estates of people who own their property have benefited from an additional nil rate band called the residence nil rate band.
In this tax year, it raises the total effective nil-rate band to £475,000, and in the next tax year, it will rise to a total of £500,000. So for a married couple, that means up to £1,000,000 of a tax-free estate.
This £1m nil-rate band is particularly useful to people in areas where property prices a relatively high but even where property remains relatively affordable like Preston, Lancashire there is a significant benefit to the additional threshold property for those with moderate to large estates.
So what happens if property prices change, mainly if they fall in value?
It seems that the number of people successfully reclaiming inheritance tax due to falling house prices has more than doubled in the past two years.
Usually some 2,000 to 3,000 people each year are repaid inheritance tax because they subsequently sold a property for a lower price than that at which it was valued.
But in the 2017/18 tax year, this increased to some 4,000 repayments by HMRC and some 4,500 in 2018/19.
So if inheritance tax is something you want to avoid at all costs, it is well worth considering what steps you might take to keep more for your family.