Inheritance Tax  

Super-rich pay half as much IHT as those less wealthy

Super-rich pay half as much IHT as those less wealthy

The UK’s super-rich are paying just half the effective inheritance tax rate of many smaller estates, figures obtained by Canada Life reveal.

Figures requested by Canada Life as part of a freedom of information request showed estates worth £10m or more paid 10 per cent IHT on average, compared to 20 per cent paid by estates worth between £2m  and £3m.

The data comes from HM Revenue & Customs inheritance tax forms for the 2015/16 tax year.

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According to analysis by Canada Life, this gap in IHT was due to the different asset composition for estates of different sizes.

Larger estates typically had a smaller percentage of their value in UK residential property (10 per cent), which doesn't have high levels of tax efficient exemptions, and a much higher amount in securities (40 per cent) which can attract 100 per cent tax relief.

Neil Jones, wealth management and tax specialist at Canada Life, said: "This difference in the net tax rates paid by estate isn’t always down to the value of the estate or the different type of assets held in an estate. It’s often about a willingness to plan.

"There is a myriad of potential solutions in an adviser’s kitbag to help mitigate IHT and some smaller estates can certainly benefit from these to reduce the tax payable and increase the wealth being passed on to future generations."

Mr Jones added some aspects of IHT were ripe for reform. He said: "As it currently stands, some forms of equities bought just two years before death attract 100 per cent inheritance tax relief. The relief was originally created to prevent a business being sold when the owner dies and has since been broadened.

"Not everyone will want to adopt high risk strategies with savings built up over a lifetime at a time they could be considering using these to supplement income in retirement."

Canada Life called for IHT to be simplified, warning the piecemeal nature of the regulations can make it an uneven playing field.

"It will be interesting to see the second paper from the Office of Tax Simplification, looking at reliefs, when it is released in the spring and what it recommends," Mr Jones said.