The HMRC recently released data revealing that in 2018-19, it was a record year for inheritance 
tax receipts with a total of nearly £5.4 billion. This is an increase of £2 billion in 2017 -18. One of the factors driving this increase is the rise in the asset values, and in particular residential property. The inheritance tax nil rate band (NRB) has not increased from £325,000 since 2009.
This means the amount of wealth that can pass in an estate free of inheritance tax has not increased at the same rate as asset values, including residential properties.
Over the same period, the average house prices have increased by around 40%.
More families have become liable to inheritance tax.
Residence Nil Rate Band
Changes by the government have included the introduction of a “residence nil rate band” (RNRB) in 2017.
The RNRB gives individuals an extra allowance when a property, their main residence, is left to a direct descendant [note]Direct descendant’s include – a child, grandchild, great-grandchild or great-great grandchild of the deceased And for the purpose of RNRB a ‘child’ includes:
• any child who is, or was the deceased’s step-child
• an adopted child is a child of the deceased
• a foster child is treated as a child of the deceased
• if the deceased was an appointed guardian or special guardian for a child who was under 18 at that time, the child is treated as a child of the deceased[/note]
When it was first introduced the RNRB was £100,000 per person and this is increased by £25,000 each year until it will reach £175,000 per person in 2020-21. Thereafter it will increase annually at the rate of the Consumer Prices Index.
As with the inheritance tax NRB, when the RNRB is NOT used it can be passed on to a surviving spouse or civil partner. This will mean that as from 2020-21, a married couple or people in a civil partnership will potentially be able to pass on up to £1 million free of inheritance tax.
There are of course conditions which apply to this relief.
The complexity of the inheritance tax legislation is generally considered to be one of the main factors behind the increase in the inheritance tax receipts.
Tax planning
Inheritance tax is often referred to as a voluntary tax as individual’s have the opportunity to take steps in their lifetime, to avoid inheritance tax liability on death.
To reduce a potential IHT liability an individual’s need to navigate a complex series of exemptions, reliefs and conditions. There is also the often overlooked interaction with inheritance tax and capital gains tax.
IHT as a voluntary tax means that there are lots of tax efficient ways to avoid an IHT liability on death. A popular method is the use of trusts, where appropriate, as a means of IHT mitigation and, a way of protecting important family assets.
