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Four questions everyone should ask about inheritance tax

Paloma Kubiak
Written By:
Paloma Kubiak

More and more families are being pulled into the inheritance tax net so being clued up and prepared has never been more important.

Why do I need to think about inheritance tax?

More and more people are being affected by inheritance tax. Figures from the Office for Budget Responsibility reveal the number of family estates eligible to pay inheritance tax has grown from around 15,000 in 2010 to more than 40,000 this year. HMRC also expects to receive its highest ever intake of annual inheritance tax receipts – £4.6bn in the 2015/16 tax year.

The new main residence allowance of £175,000 per person, which applies to estates that include a family home and is due to be phased-in over the next few years, will not benefit everyone. When you consider the rise in house prices over the last five years, and the number of properties now worth well above the allowance, it means many more people might be sitting on an inheritance tax liability. Its impact now extends far beyond the super-rich.

Am I sleepwalking into an inheritance tax nightmare?

Despite inheritance tax being in the headlines recently, recent research from Octopus found just 14% of people were aware that the current inheritance tax-free allowance for individuals is only £325,000. If your estate is worth more than this, the remainder will be taxed at 40%. This low level of knowledge around the details of inheritance tax could mean that people are not aware their estate could be affected.

What are my options when looking at estate planning?

If the idea of gifting large sums of money to family members feels inappropriate at your stage in life, it’s not the only way to reduce or eliminate an inheritance tax bill. The government offers tax incentives to people who are interested in investing in qualifying smaller companies, and are willing to accept the risks that go along with such investments. These incentives are aimed at encouraging greater investment into small businesses that are providing significant benefits to the UK as a whole, both in terms of job creation and economic prosperity. Click here for more on Enterprise Investment Schemes.

When’s the right time to seek financial advice?

Given the choices now available to us when thinking about retirement, there’s never been a better time to talk to your financial adviser so you make the best decision for you and your loved ones. Getting the right advice can make a real difference – especially when it concerns a topic as important as inheritance tax.

Simon Rogerson is chief executive of Octopus Investments