Complicated IHT Tax Take Goes Up Despite New Nil Rate Band

The Treasury’s inheritance tax take is up by nearly a fifth despite a new relief designed to save families paying death duties.

HM Revenue & Customs figures show estates paid almost £2.4 billion in inheritance tax between April and August this year – an 18.7% increase over the same period last year that has boosted Treasury coffers by £375 million.

This surge in inheritance tax collected coincides with the introduction of a new residential nil-rate band in April giving families a larger tax-exempt allowance.

Experts argue the increase may be due to families sorting out their own estates not realising that inheritance tax reliefs are not applied automatically but must be claimed.

IHT is fiendishly complex

Sean McCann, a chartered financial planner at NFU Mutual, said: “Despite the introduction of the new tax break, inheritance tax appears to be hitting families harder than ever before. Receipts have risen by almost 20% and it’s clearly the result of an ever more complicated tax system and a more aggressive approach from the taxman.

“The system of reliefs for inheritance tax is fiendishly complex. Complicated tax rules mean families could be inheriting less than they are entitled to.

“Many families won’t realise that reliefs such as the new residents’ nil rate band and the transferable spouse’s nil rate band are only available if you claim them.

“Anyone trying a DIY approach to probate may find themselves tied up in knots by the new rules, meaning they fail to apply for all the reliefs available to them.”

70 forms for reporting IHT

Inheritance tax offers two nil-rate bands –

  • £325,000 for individuals that can be passed to a spouse if unused, making a total of £625,000
  • The residential nil-rate band that can also be passed on if unused to double the tax-exempt amount – the relief is £125,000, increasing to £150,000 in 2019 then £175,000 in April 2020. This band allows a family home to pass to loved ones.

Confusion can arise as the executor of an estate pays any inheritance tax due. Part of the process is completing forms to claim the residence nil rate band and to transfer unused tax bands to a spouse.

Executors also should complete a host of other inheritance tax forms to confirm who has probate, the size of an estate and other technical aspects of reporting to HMRC.

HMRC has 70 forms for reporting inheritance tax, although only a handful are required in most cases.

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Complicated IHT Tax Take Goes Up Despite New Nil Rate Band
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