Inheritance tax (IHT) receipts are projected to reach a £10 billion per year by 2030, according to research from Canada Life.

Neil Jones, market development manager at Canada Life, said the firm’s analysis has found that it has taken 30 years to reach the current revenue level of around £5.1 billion per year, but it is now expected to take only another 10 years to reach £10 billion.

He added: “There’s plenty that can be done within the existing rules to reduce an IHT bill. Perhaps because of a very British reluctance to discuss death, many people – and sometimes their financial advisers – won’t bring up estate planning. As a consequence, the government is undoubtedly receiving tax that with proper planning wouldn’t need to be paid.

“There are many solutions out there, like discounted gift trusts, which can reduce IHT while still enabling fixed, regular payments for people who are scared of ‘giving it away too soon’. We’d urge people to consider meeting with a financial adviser. For a relatively small outlay, the rewards for future generations can be enormous.”

The increases come as the nil rate band, one of the most important means of protecting an estate from IHT, reaches its tenth anniversary of being frozen at £325,000.

As asset values increase, but the nil rate band remains static, more people are caught in the IHT trap and in real terms are able to protect far less of their estate from IHT than before.
According to Canada Life’s research, many estates are also likely to end up paying more IHT than is necessary, with approximately 18% of estates worth up to £1 million failing to put in place an inheritance tax plan.

Commenting on the issue, James Wyman, financial adviser for Lyndhurst Financial Management, said: “IHT is the only tax which people choose to pay. There are plenty of planning opportunities out there that allow you can maintain your current standard of living whilst ensuring that the estate falls within the nil rate band. The residence nil rate band has helped relieve the tax burden for those leaving property to children or grandchildren, however if you do not have direct descendants to leave property to then you will not benefit for this allowance.

“IHT planning should begin at retirement. There may not be any action that is required early on as you spend through your assets, but it should be reviewed each year. The fact that pensions are classed as outside of the estate means that the first port of call in retirement should be to use assets liable to IHT.”

Kusal Ariyawansa, a chartered financial planner at Appleton Gerrard, said the most effective way to mitigate IHT is to plan early and gift without reservation.

He added: “When you realise that you get taxed on earning income, but then on interest earned on savings and on gains made when selling, it is incomprehensible to know more will be taken on death. Out of all taxes it is crystal clear that IHT is nothing but a jealousy tax and we should do whatever is allowed in order to minimise its effect. No one works hard, takes financial risk, saves wisely whilst paying tax at each stage to happily see their children having to pay a tax charge to get what is effectively theirs.

“My advice is inter-generational and involves in depth discussions about the purpose of retaining control of ‘unnecessary’ money. Why pay others to invest your money when the grandchildren might also be paying interest to a third party?

“Being a highly sensitive area, it is vital that all family members as well as a solicitor is included as once you lose control there could be unintended consequences, unless there is an overall understanding and agreement. The most effective way to mitigate IHT is to plan early and gift without reservation because deep down we all know that we came and will depart with nothing.”

Aamina Zafar is one of the UK’s leading financial journalists. She has previously worked as a senior reporter at FT’s Financial Adviser. The award-winning journalist writes regularly on the IFA community, mortgages, pensions and financial regulation.

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