An Introduction to Inheritance Tax

by Editorial Team
Published: Last Updated on

by Deborah Jacobs, Chartered Financial Planner at PenLife Associates

And we’re back! Yep, you guessed it, we’re talking about Inheritance Tax (IHT). Let’s face it, it’s not pleasant to talk about death, especially your own or your loved ones. We know that. And no-one likes to think about it. With that being said, the majority also wouldn’t want to make the process even harder than it has to be for their children/the loved ones they’ve sadly left behind. So, whether you like it or not, it’s always best to seek professional advice to help them avoid unnecessary upset.

In 2021, the average IHT bill was over £200,000. That’s £200,000 straight into the tax man’s pocket… guess his hard work pays off, eh? That average is up 6% from the previous year, and guess what? It’s only going to rise. Last March, there were 2 IHT exemptions frozen: the nil-rate band (£325,000) and the residence nil-rate band (£175,000). With rising asset prices, a heated housing market, what do the government expect us to do? The nil-rate band of £325,000 has been in place since 2009, so come 2026 and it’ll have stayed the same for 17 years. Now if that’s not called being greedy, I don’t know what else is.

Let’s say you’re not married and worth £700,000 when you die. And in your will, you’ve outlined the beneficiaries of your estate. Before anything can be passed down, there’ll be a tax bill of £150,000. And this needs to be paid within 6 months from your death. So, if a lot of your money is locked into properties, they would need to be sold and the inheritance tax liability paid before you could distribute any money to anyone else. It just doesn’t seem fair, does it? When you’re already grieving…

So, besides the obvious – paying tax – what makes IHT so bad? Well, we think there are two reasons:

  • Over the years, as a country, we’ve experienced inflation. This means that people’s wages and house prices have risen significantly. But the allowance hasn’t risen with it, which means more and more people are falling into the bracket of people who will be taxed.
  • Throughout our lifetimes, most of our estate will have already been taxed before…sometimes more than once (through income tax or capital gains tax)! This means, after paying our fair share, the government are taking an additional 40% off assets they’ve already taxed!

However, you don’t need to panic. There are many legal ways to find your way around an IHT bill, you’ve just got to know how to do it. That’s why we created this guide that’ll introduce to you what you can and can’t do when trying to reduce a potential tax bill. If you’d like a FREE copy, use the cut out on this page, give us a call at 01904 661140 or email us at office@pen-life.co.uk. We hope this guide helps you take the initiative. Start your financial journey today.

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