Death taxes for families reached a record high of more than £5 billion last year, according to figures from HM Revenue & Customs.
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The inheritance tax take was up £400 million to £5.2 billion despite the launch of a new allowance allowing parents to pass on more of their wealth without paying tax.
While the allowance has increased, soaring share and property prices have outstripped the wealth someone can pass on without paying IHT.
The personal tax-free allowance remains at £325,000 – where it has stuck for nearly a decade – while the first phase of main residence relief allows someone to pass on an extra £100,000 of the value of a family home to children or grandchildren.
Married couples can double up the allowances to keep £850,000 of their wealth out of the hands of the tax man.
Tax take will keep rising
This will rise to £1 million by April 2020, as main residence relief increases year on year.
Although working out an IHT liability is complicated, HMRC says no one will miss out on main residence relief if they are entitled to claim.
“The additional allowance for passing on a home does not have to be claimed. It is included automatically even if a claim is not made, so every estate entitled to it will benefit, while anyone who has missed out inadvertently can claim back overpaid IHT,” said an HMRC spokesman.
The amount of IHT collected by HMRC is set to continue to increase while the economy grows – bolstering share prices and the value of homes.
How to save IHT
Many families will be hoping of some relief from Chancellor Phillip Hammond’s review of IHT.
He has ordered the Office of Tax Simplification to look at how IHT is calculated and if the rules can be made less complicated.
For instance, families can save tax by leaving a main home to a child who then makes a gift to another relative.
If the home was worth £100,000, no tax would be paid by the child, but the other relative would pay IHT at 40% (£40,000). Leaving the property to the child who then gifts the property reduces the amount paid to 18% or 28% as capital gains tax.
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