More Families Facing Shocking Inheritance Tax Bills
Beware the seven year rule ...
Posted by Helen Beaumont on 04/09/2024 @ 8:00AM
Inheritance tax is a topic that is often overlooked until it becomes a reality. However, recent data from a Freedom of Information request to HMRC has shed light on the increasing number of families facing shocking inheritance tax bills ...
The rising number of families facing shocking inheritance tax bills serves as a reminder of the importance of proper estate planning!
According to the data, the number of estates paying inheritance tax on gifts made before death has more than doubled in the past decade, from 590 in 2011/12 to 1300 in 2020/21. This means that more and more families are being hit with unexpected tax bills after the passing of a loved one.
"The total inheritance tax collected from these estates has also risen significantly!"
From £101 million in 2011/12 to £256 million in 2020/21. This equates to an average of £196,923 per estate, a staggering 25% increase from ten years prior. These shocking figures highlight the potential financial burden that families may face if proper estate planning is not in place.
So, why are more families in the UK facing these unexpected and often substantial inheritance tax bills? The answer lies in the seven-year rule. This rule states that any gifts made within seven years of death may be subject to inheritance tax if the person making the gift passes away within that time frame. Even small gifts, such as monetary sums or property, can add up and become taxable if the person making them dies within seven years.
This rule also applies to gifts made to trusts, which can be a useful tool for estate planning. However, if the person who created the trust passes away within seven years of making the gift, the trust may also be subject to inheritance tax. This can come as a surprise to many families who may not have been aware of the potential tax implications of creating a trust.
"The data also reveals that the number of inheritance tax investigations has increased!"
In 2020/21, HMRC recovered £1.39 billion from inheritance tax probes, highlighting the importance of proper record-keeping and transparency when it comes to gifts and trusts. This trend of increasing inheritance tax bills and investigations serves as a reminder of the importance of proper estate planning.
A trust is worth considering and by setting one up, individuals can transfer assets to their beneficiaries while still retaining some control over how those assets are used. This can be particularly useful for families with young children or individuals who want to ensure that their assets are used for specific purposes, such as education or charitable donations.
"Another important aspect of estate planning is keeping accurate records!"
This means a record of all gifts and transfers to loved ones. This can help to avoid any potential disputes or investigations by HMRC, which can be costly and time-consuming for families.
The rising number of families facing shocking inheritance tax bills in the UK serves as a reminder of the importance of proper estate planning. By being aware of the seven-year rule and seeking professional advice when creating trusts or making gifts, families can avoid unexpected tax burdens after the passing of a loved one.
It is also crucial to keep accurate records and stay informed about any changes in tax laws that may affect estate planning.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about Inheritance Tax, do give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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