It has been reported the government is considering a cut in Inheritance Tax (IHT) before the general election. 
Figures from HM Revenue & Customs (HMRC) show that government income from IHT was approaching £1billion higher in February than in the same period last year. 
Money and property are subject to inheritance tax.

IHT rates 

IHT is paid at 40% on estates valued at over £325,000. A reduced rate of 36% applies if at least 10% of your estate’s value is left to charity in a Will. IHT doesn’t apply if everything is left to your spouse or civil partner, who effectively also inherit your £325,000 allowance. When they die they can pass on a joint £650,000 tax-free allowance. If the family home is left to children or grandchildren the allowance increases to £500,000 so a couple could leave £1,000,000 tax free. 
However, increasing house prices mean IHT is now affecting many more families. Nil Rate Band and Residence Nil Rate Band allowances are currently frozen until 2027/28. This means the threshold has not changed for almost 20 years. If the threshold had risen in line with inflation since it began in 2009, it would now be almost £465,000, according to the Bank of England inflation calculator

IHT receipts increase 

The number of families paying inheritance tax is now at the highest level for 20 years. It’s increased by 24% in the last year and is almost double the 2018/19 figure. Around 41,000 families are now liable to pay IHT, compared to 33,000 in the last tax year. 
There’s no doubt IHT is a very unpopular tax. A YouGov poll showed that almost half of the people who responded thought IHT was unfair or very unfair. 
However, the government raises £billions from IHT each year and the threshold freeze will reduce the amount it borrows. 

How to reduce inheritance tax 

You can take some steps to reduce the amount of IHT due when you die. You can make it clear in your Will that your estate will go to your partner and then to children or grandchildren so that you gain the most relief from IHT. You can invest in a defined contribution or money purchase pension which is usually free of IHT. You can also give away certain tax-free amounts each year. Other gifts might also be exempt if they are given more than seven years before you die. 
Please get in touch if you would like some advice about writing a Will to help reduce your IHT liabilities. 
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