Inheritance Tax  

Investors could lower IHT bill by 12%, study claims

Investors could lower IHT bill by 12%, study claims

Taxpayers could reduce their inheritance tax (IHT) bills by 12 per cent over the next year, a report from accountancy firm UHY Hacker Young has claimed. 

According to the study, forecasts from HM Revenue & Customs (HMRC) shows the value of business relief (previously business property relief) is expected to rise 8 per cent in 2017/18, from £655m in 2016/17.

Qualifying Alternative Investment Market (Aim) companies benefit from the relief, which can mitigate IHT as long as they are held for at least two years.

Article continues after advert

As a result, taxpayers are expected to reduce their bills by 12 per cent over the next year, approximating to £710m in 2017 to 2018, through investments made in Aim-qualifying shares, unlisted companies and other business assets, according to accountancy firm UHY Hacker Young.

Investments in qualifying Aim-listed companies, enterprise investment schemes (EIS) and other private companies have become increasingly popular over recent years as these assets are often exempt from IHT, a statement from Fundamental Asset Management has said.

As quoted in the Fundamental Asset Management statement, latest figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 28 2018, up from £4.7bn in 2016 to 2017, suggesting there is scope to use business relief to further lessen tax bills for UK taxpayers

Mark Giddens, partner at UHY Hacker Young, said: "The government has reduced the scope of legitimate tax planning opportunities over the years especially for higher earners – so the few that are left are increasingly popular.

"Encouraging investment in Aim shares and other unlisted companies is good for the broader economy as they create growth and jobs.

"High inheritance tax bills have become a concern but there are steps that can be taken to cut the tax bill."

This comes as Christine Tuckerman, partner and wealth specialist for Bishop Fleming, warned families to do more to safeguard their assets from falling into the Treasury's coffers, especially as soaring property prices are pushing people over the £325,000 limit.

House prices have risen by around 24 percent in the past five years, with further rises expected, so more and more homes will be caught in the tax net in future despite the extra allowance for the family home, she explained.

Recent figures from the government for the 2017/18 tax year reveal inheritance tax receipts rose to a record £5.2bn, an increase of 8 per cent on the previous year. This is despite a new allowance being phased in to protect the family home where it is passed on to a direct descendent.

Ms Tuckerman said: "Where someone dies in the UK, their estate can be subject to inheritance tax at the rate of 40 per cent on amounts over £325,000. A will that is not properly considered could leave those set to inherit with a sizeable tax bill.

"Making a will or reviewing an existing will ensures wishes are properly reflected in writing. A will avoids the intestacy rules which could create undesired results. It also allows for some considered tax planning to minimise a family's future tax exposure."