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Woodland with shaft of light | accountingweb | IHT: APR and Woodlands relief restricted to UK land
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Exemptions help frame inheritance tax in new light

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Latest statistics show the percentage of estates paying inheritance tax remains relatively stable, but many people still fear the tax.

31st Jul 2023
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Inheritance tax (IHT) is one of the most feared taxes, but its unpopularity is not altogether logical. The latest statistics on the performance of IHT reveal the value of IHT bills continues to rise while the percentage of estates paying the tax remains relatively stable. Only 3.73% of deaths in 2020/21 resulted in the payment of any IHT, although many more people think their estate will be liable to the tax on their death. 

Politicians, especially those who want to appeal to older and better-heeled voters, routinely spread rumours about promises to abolish IHT, but removing such an established tax is unlikely to happen.

Although IHT is one of the smaller taxes in terms of cash collected, the £7bn of IHT raised in 2022/23 is still a very useful addition to HM Treasury. IHT also combines two of the easiest targets for revenue raising: immovable property and non-voters (estates of deceased persons don’t vote). 

Let’s look at some of the statistics from 2020/21 in detail.

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Replies (23)

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By Justin Bryant
31st Jul 2023 13:24

These figures show that people like DN talk nonsense re 100% BPR causing big IHT leakage via AIM shares etc.

Total annual tax receipts in the tax year 2022 to 2023 were £786.6 billion and such AIM shares IHT BPR can't cause more than a £500m dent in that at most.

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Replying to Justin Bryant:
paddle steamer
By DJKL
31st Jul 2023 15:00

Justin

Does not AIM relief and other reliefs bite before the £786.6 tax payable, so the tax payable of £786.6 is after the relief, how much AIM bites cannot really be deduced from what is actually paid .

I too suspect not that much re AIM shares as I have rarely had a client willing to invest in AIM for IHT (On the basis that any rule change will decimate AIM share values, AIM only therefore working if you can guarantee the relief will be in place until after one dies and one's estate has offloaded the AIM shares (A touch of pass the parcel)

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Replying to DJKL:
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By Justin Bryant
31st Jul 2023 15:35

My point is that if you look at the IHT figures it's stated before BPR relief (which enables you to guesstimate the £500m figure) and I gave the UK total tax take figure for context re the worst case (as far as DN is concerned) £500m IHT loss re AIM share IHT planning.

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By Hugo Fair
31st Jul 2023 18:02

"IHT also combines two of the easiest targets for revenue raising: immovable property and non-voters (estates of deceased persons don’t vote)" .... no, but beneficiaries of the estate (who typically are expecting a distribution that has not been denuded by IHT) *do* vote.

On the other hand, the brighter beneficiaries (at least those who are 'children' of the deceased) have got used to encouraging parental 'downsizing' of any major assets (such as the family home in London) ... and relying on parental longevity post-retirement (to eradicate or at least minimise IHT).

Personally I 'lightened my load' as soon as I hit retirement (it actually feels quite liberating) and fully intend to survive the subsequent 7 years (as do all of us I guess) ... and I've identified a couple of trustworthy 40 year olds who, should it become necessary, could become a deathbed bride.
But really a pot of upto £1m (flat/pension/investments/savings) is quite sufficient for 1 old man!

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Replying to Hugo Fair:
paddle steamer
By DJKL
31st Jul 2023 18:43

My father always stated he was going to marry a 16 year old on his deathbed to get his revenge on the WS(Writers to the Signet) Widows Fund who insisted, whilst he was in practice but no longer married ,that he had to continue paying into the fund. (They might have had to pay 70 years pension thereafter)

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Replying to DJKL:
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By paulwakefield1
01st Aug 2023 07:56

The unanswered question: Did he?

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Replying to paulwakefield1:
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By DJKL
02nd Aug 2023 10:00

No, however it was a tempting thought to take a form of revenge.

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Replying to DJKL:
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By Ian Bee
01st Aug 2023 16:44

I believe that pensions were still being paid to widows of veterans from the US civil war in the 21st century, though probably ceased by now. (Marriages had taken place when the groom was very old and the bride a teenager)

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Replying to Hugo Fair:
By cfield
02nd Aug 2023 16:55

Hugo Fair wrote:

... and I've identified a couple of trustworthy 40 year olds who, should it become necessary, could become a deathbed bride.

Wouldn't you need to consummate the marriage Hugo? Might that be a problem?

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Replying to cfield:
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By Hugo Fair
02nd Aug 2023 17:27

Well, I've never been paid for sex ... but, as per that line in Pretty Woman to Julia Roberts, that'd be quite some incentive to rise to the occasion (even if it hurried my departure)!

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Replying to Hugo Fair:
By cfield
02nd Aug 2023 17:35

There's always [***], and it would get the value of your estate down too.

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Replying to cfield:
By cfield
02nd Aug 2023 17:37

Aargh, didn't realise the auto-censor would blank that word out, just because it's a commercial product beginning with V. Just wanted everyone to know it wasn't a swear word.

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By petestar1969
02nd Aug 2023 09:23

Why is a tax that's basically voluntary feared so much?

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By listerramjet
02nd Aug 2023 09:29

It is a pointless tax and revealed preference shows how widely it is despised. If Sunak is serious about politics he will scrap it.

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Replying to listerramjet:
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By raju m
02nd Aug 2023 10:34

The labour party would argue that Rishi is helping himself and his wife as they are very wealthy. Raju m

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Replying to raju m:
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By listerramjet
02nd Aug 2023 14:56

Doesn’t work. Wealthy people don’t pay inheritance tax.

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By FRAM
02nd Aug 2023 12:55

I am surprised the less than 4% of uk deaths pay IHT. Average price house in London 533.000£. Average price in South West England, 1.2 million according to Savills. I agree that many of these properties have mortgages but still 4% is very low. If you have heard the latest Lloyds bank (the largest mortgage provider in UK) data on mortgages the Lloyds CEO stated that only a minimal number of properties in UK have mortgages so their business will not be impacted by raising rates! I do not know anyone that has a property that has no mortgage... If I die today I will most likely have to pay IHT and my children will have to sell quickly my small flat in London to have the cash to pay for IHT. Valued by Foxtons at 650.000 but a similar one sold in the same building 3 month ago at 350.000 (and was on the market for nearly a year and repossessed so only cash buyers!) so may be there will be no IHT if I persuade to value at real price not the inflated Foxton price! what is the trick here?
Definitely need to donate more, and start putting more money in pensions, Aim shares, EIS, BRP and perhaps considering renouncing to my British Citizenship. All extreme choices that many people will not do and not know.
I consider myself relatively poor but most likely I will have to pay IHT.

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Replying to FRAM:
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By paulwakefield1
02nd Aug 2023 13:38

FRAM wrote:

If I die today I will most likely have to pay IHT

Good trick if you can pull it off.

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By alan.falcondale
02nd Aug 2023 13:10

did the royal family pay any IHT or all under BPR?

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By cfield
02nd Aug 2023 17:12

It's not just single people who get the rough end of the stick with IHT, it's unmarried couples too. I've just had a client who got clobbered for £400k because he and his partner never got round to getting married. They always meant to, but then one terrible day one of them dropped dead aged 61 from a stroke and it was too late.

If Sunak really wants to impress the electorate, he would extend the spouse exemption to them too. Of course, there would have to be guardrails, otherwise all sorts of loopholes would abound.

Oh, and he should put the nil rate band up too. Isn't 14 years long enough for it to be frozen? Let's see if the left wing parties have the cheek to call it a tax cut for the rich.

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By Nebs
02nd Aug 2023 19:49

How about if I have a £1million bet with my sister, that I will live longer than her. Write down the bet, both sign it and get a solicitor to witness the signatures. As bets are now legally enforceable, and winnings are not taxable, then whichever of us dies first will have to pay (out of our estate) £1million to the other one.

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By AndrewV12
03rd Aug 2023 09:51

IHT is the easiest tax to sidestep, it tends to catch those but are un-aware they could be subject to it.

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