Recent data from HM Revenue and Customs (HMRC) has found that IHT receipts for last tax year came to £6.1billion. This is a sharp 14 percent increase from the previous year and an increase of £729million.
For the 2019-20 tax year, the average inheritance tax increased by £7,000 from £209,000 to £216,000.
Inheritance tax (IHT) can cost family and friends thousands when a loved one passes away – but there are ways to legally ensure that people are leaving behind as much as possible to their relatives when the time comes.
“Planning is key – it’s never too early to do this,” an expert stated.
Express.co.uk spoke exclusively Stevie Heafford, Partner at accountancy firm HW Fisher on how Britons can use their pensions in a tax efficient way.
She explained that with the IHT nil-rate bands frozen for the next few years, it is more important than ever to ensure someone’s affairs are in order.
This will help keep more of their hard-earned assets out of the claws of the taxman.
When it comes to long-term savings, pensions are now extremely tax efficient on death. There is usually no IHT to pay and it is even possible to pass on one’s pots tax-free to their nominated beneficiaries if they die before age 75.
She stressed that people should “maximise their savings.”
Ms Heafford said: “Most pension pots fall outside of the estate for the purposes of inheritance tax and so they can be passed on free of inheritance tax on death.
“This contrasts with other investments such as bank accounts, ISA’s and portfolios. Whilst ISAs give the opportunity for tax free growth and income, they still fall within the taxable estate on death and are subject to inheritance tax at that point.
Ms Heafford continued: “However, there can be other tax charges associated with passing on pensions depending on the type of pension it is, how you are paid the pension and the age of the person who has died.
“For example, if you receive a lump sum payment and the owner of the pension was under the age of 75 when they died, you will usually pay no tax.
“If you receive a lump sum but the owner of the pension was over 75 when they died, you will usually be subject to income tax which will be deducted by the provider.”
If passing money onto loved ones is important to someone, it’s worth reviewing where their assets are held to ensure they aren’t exposing more than is necessary to IHT.
Britons are reminded that it can be worth considering speaking to a qualified financial adviser to understand their options.
They will need to pay a fee for their services, but often their expertise in navigating the tax maze will actually save families thousands of pounds.