Do you need to plan for inheritance tax?

“Abolishing the tax could help turbo charge wealth creation and therefore the economy. Also, IHT is a notorious administrative burden both for estates and HMRC. Eradicating it completely could ease the strain on grieving families and let them focus on what matters.

"But there are, of course, two sides to the argument here. On the one side there are more people being affected by the 40% tax on inheritance, but on the other it has provided tax revenue to the public coffers which increased by £1bn last year alone.

"Clearly the complete abolition of the tax would not be without its downsides.

"Considering how lucrative the tax is, getting rid of it altogether could punch a hole in the country's budget, compounding an already bleak economic outlook. The tax also serves as a tool for wealth redistribution, helping bridge the ever-growing wealth divide. IHT's role in wealth redistribution cannot be underestimated. The tax primarily affects the wealthiest households, with the top 10% of estates typically accounting for a big chunk of the overall IHT bill. Abolishing or reducing the IHT could contribute to wealth inequality, which is already a significant issue in the UK."

”There may instead be a middle path.

"Revising the threshold and cutting the 40% rate might be an easier pill to swallow for politicians, representing a Goldilocks solution - not too harsh, not too lenient but just right. Reducing the rate could still keep the revenue flowing while softening the blow on the wealth creators. Likewise, raising the threshold would exempt more estates from the tax, providing relief to the middle-class families who often find themselves in the IHT's crosshairs when that was not what the tax was first intended to target."

“As well as tax affecting inherited wealth, there are also implications for gifts of money made during your lifetime. The law around gifting has been effectively ‘frozen in time.’

"The annual exemption currently allows you to give away £3,000 worth of gifts each tax year without them being added to the value of your estate even if you die within seven years of making them. But this was set in 1981 and hasn’t changed since. Had the allowance tracked inflation, it would be permissible to gift nearly £11,300 per tax year to the end of October 2024 according to the Bank of England’s inflation calculator.

"Given the allowance has been unchanged for more than 40 years and considering the economic backdrop it would be wise to change this and give a well needed carrot to a public who have suffered a lot of stick.

"Even if the various allowances are not uprated to help increase the amount of people making lifetime gifts, all the allowances could be amalgamated into one annual relief at a rate that better reflects current inflation."

You should definitely check to see if IHT will affect you in the future, as well as giving serious thought to using your annual gifting allowance. The annual gifting allowance of £3000 can be carried forward for only one tax-year, after that you lose it, so if you are in a position to make use of the allowance it is crucial to do so as to not lose out.

The rate of change in the property market means even if you thought IHT would not affect you a few years ago it may well do now. We will always recommend you seek financial advice and make sure you’re well prepared.