Introduced in 1796 as Estate Duty to fund the war against Napoleon, the tax levied on a person’s assets on death was re-named Inheritance Tax in 1986, but continues to be referred to as Death Duty.
The tax covers not only the estate of the deceased, but gifts made during the last seven years of his life, in an attempt to prevent ‘last-minute’ transfers evading duty. Beyond the nil-rate band the current tax rate stands at 40% (20% on lifetime gifts in last 7 years).
Governments have over the years adjusted the tax so that if affects different portions of the population, depending on their political slant or the need to fill the coffers. In 2013, for example, George Osborne’s Autumn Statement showed a sharp rise in the expected revenues from then to 2017-18, from £18 bn to £21 bn, based primarily on a predicted rise in property prices. Yet the nil rate band which might prevent the value of people’s homes drawing them into the tax remained at £325k and is frozen until 2018.
However, it is said that Inheritance Tax is the only ‘voluntary’ tax, since lawyers and accountants believe they can help their clients reduce the taxable estate through the use of reliefs and exemptions. Without careful estate planning you could find that the taxman takes more in death duties than each intended beneficiary.
Inheritance Tax planning can be undertaken at any time, and is often discussed alongside making a Will. A few simple steps may be sufficient to reduce the level of tax paid on your death, so increasing the amount available for distribution in accordance with your wishes.
The Times article on Autumn Statement December 2013
HMRC Inheritance Tax