How Inheritance Tax Has Changed Over The Years

Most of today’s inheritance tax legislation dates back to 1894, as this is when the UK government decided to introduce tax on this such as capital land value and estate duty to help them raise additional funds. This new inheritance tax essentially replaced other separate forms of taxations and merged them into one simple form of tax. When the tax was first introduced it was simply designed to only impact those seen as the wealthiest members of society, however as with all forms of tax it trickles down and starts to affect all members of society. With more and more people buying homes and the property boom of the early 00s, inheritance tax started to have more of an impact across the board.

It’s estimated that up until 1993, inheritance tax has helped to raise around £1 Billion for the UK government. However, by 2008 the same tax had helped to raise a staggering £4 Billion over a much short time period. The recession then impacted this figure and it dropped to £2.4 Billion by 2010. Once recovery started and the pandemic helped with a boom of the housing market once again, the level raised once again to £5.6 Billion.

Inheritance tax impacts so many cases now and that’s unlikely to change, however effective estate planning can help to reduce the inheritance tax burden on your family. If an individual’s estate is worth more than £325,000 at the time of passing, then the tax is charged at a rate of 40% on anything beyond this value, however this can be reduced to 26% should more than 10% of an estate be left to a charity.

The Biggest Changes To Inheritance Tax

Since its inception there have been a number of changes that impact inheritance tax and the overall level paid by your family members upon your passing. Many people consider using estate planners before they pass, as it can help to reduce the overall level of inheritance tax that is paid upon your death. Some of the biggest changes to inheritance tax over the years are:

• Gift Giving – Gifts given 7 years before a person’s passing are exempt from inheritance tax and if it’s less than 3 years it will still occur 100% tax, however if it’s between 3 and 7 years, the percentage will vary. However, certain gifts are exempt regardless of when they have been given.
• Sharing Inheritance Tax Allowance – A couple who were married could enjoy an allowance of £600,000 before paying inheritance tax, whilst those who were single retained the allowance of £300,000. Should one partner die before the other, the nil band rate applied changes depending on the amount of the allowance left unused.
• Tax Free Allowances – A new measure was designed in 2015 which allowed for additional tax free allowances to be in place, for when property is passed to a direct descendant.
• Inheritance Tax Accounting & Reporting – 2022 is seeing the most recent changes to inheritance tax, this affects inheritance tax reporting and how it’s completed, the money limit transfers before passing has changed and exemption limits have been altered and trusts are now capped as well.

Planning For Your Passing

If you’re wanting to reduce the financial burden on your family and ensure they make the most out of your estate, whilst reducing the overall level of inheritance tax, then you should be considering estate planning. At The Lost Coin Financial Planning, we offer effective estate planning services, which will help to ensure your family is well looked after when you pass and the financial burden is lessened.

Categorised in: Inheritance Tax, Tax

This post was written by duodigitaluk@gmail.com