Inheritance tax can be traced back as far as the year 1694 and a single estate duty was introduced in 1894.
This led, for the first time, to the breaking up of large estates, which was the very purpose of inheritance tax so that the wealthy could not retain all of their assets and the tax could be used to provide for the poor and needy.
Inheritance Tax Thresholds
In 1972, when the spouse exemption was introduced, the inheritance tax threshold was just £15,000 and the average house price was £7,000. Today the inheritance tax threshold is £325,000 per person and the average house price in the UK is £288,000. This means that between 1972 and 2015, UK house prices have gone up by £6,535 per year and the inheritance tax threshold has actually increased more at £7,209 per year.
Whilst the National Average may paint a rosy picture, the regional variations can be entirely different. In 2015 the average house price in London rose to a staggering £514,097, which is considerably more than the current inheritance tax threshold and many more families with quite modest estates.
Inheritance Tax not Just for the Super Rich
In reality inheritance tax no longer only applies to the "Super Rich" and many people worry that their modest estate will suffer a punitive inheritance tax charge because of the value of their home. They also worry that their beneficiaries will not be able to pay the inheritance tax, as the tax rate is high at 40%, and this will lead to the family home having to be sold.
However, inheritance tax can be limited. The spouse exemption still exists, and the government has also introduced the combining of the inheritance tax threshold for married couple and civil partners. This means that if a husband leaves his entire estate to his wife then her inheritance tax allowance will actually, under current figures, be £650,000.
Family Home Allowance
The family home allowance will also be introduced in 2017, and this will effectively take the inheritance tax threshold to £1,000,000 for married couples and civil partners by 2020.
Understanding how much inheritance tax your estate may pay is crucial, especially when you are considering how you want your estate to be distributed. Looking at what assets and liabilities you have and how you will provide for your own future financial needs are all important considerations.
Restructuring your Estate
Some simple restructuring of how your assets are held and some gifting may, potentially, reduce your inheritance tax liability without considerably reducing the value of your estate. There are also some trusts that can be set up to carry assets to the ultimate beneficiaries of your estate without them suffering an inheritance tax charge. If an inheritance tax charge is unavoidable then planning as to how it can be paid will give you the reassurance that your beneficiaries will be able to retain the assets that you want them to keep.
We Can Help
At MW, Our Mission is to make quality legal services accessible to everyone including those caught in the trap of regional house price inflation. Our specialist solicitors can help advise on the best way to restructure your estate to make sure your beneficiaries pay the right amount of inheritance tax. If you are concerned about your estate provision and would like to speak to one of our experts call us today on 0203 551 8500 or email us at firstname.lastname@example.org