The UK government raked in £5.4bn ($6.7bn, €6.1bn) in IHT receipts during 2018/19, an increase of 3% from the previous tax year.
The total number of deaths that resulted in an IHT tax change has increased every year since 2009/10.
This can, at least partly, be attributed to the freezing of the nil-rate band tax-free threshold at £325,000 in April 2009, which meant that a rising numbers of estates have been creeping beyond that limit.
Don’t get caught out
For AJ Bell senior analyst Tom Selby, it is “no surprise that HM Revenue & Customs continues to rake in record sums through IHT”.
“The world of inheritance tax is painfully difficult to navigate and while the wealthiest should be able to afford suitable advice to take advantage of the various exemptions and relief available, those who can’t risk being caught out.
“As a minimum, the level of the nil-rate band should be looked at again and increased in line with inflation. Ideally a more fundamental government overhaul of the IHT framework should also be undertaken, aimed at simplifying the structures for investors.”
Pension death benefits
Selby continued: “Savers can mitigate HMRC’s IHT tax grab by saving in a pension.
“Under changes introduced in 2015 alongside the pension freedoms, untouched defined contribution pensions can be passed on tax-free to beneficiaries if you die before age 75, while if you die after 75 the money will be taxed in the same way as income when it is withdrawn.
“One area the government should act on is a quirk in the rules which means most providers are required to exercise discretion over how pension death benefits are paid out in order to prevent an IHT charge being levied. This seems odd in a world where retirement control has been firmly put in the hands of the individual.
“The current approach can cause delay and administrative headaches at a painful time for beneficiaries, and it would be much simpler if pensions were removed from IHT altogether.”
