Navigating Inheritance Tax (IHT) Changes
As more individuals and families seek to reduce inheritance tax exposure, some may unknowingly trigger large tax bills. Speaking to The Daily Express, Spencer West Private Wealth Partner Hudda Morgan warned that without careful planning, the new changes could leave individuals or their heirs facing a 40 per cent levy.
Inheritance tax (IHT) applies to estates above £325,000, or up to £500,000 when the main residence is passed to direct descendants. Above these thresholds, a flat 40 per cent tax applies. While gifting can reduce exposure, the rules are strict.
Hudda Morgan highlighted three key risks:
- Lifetime gifts within seven years
Gifts above the £3,000 annual allowance, or outside the £250 small gift exemption, may still be taxed if the donor dies within seven years. Many assume these gifts are tax-free, but if timed poorly, they are added back into the estate for IHT purposes. - Unmarried Couples
Long-term partners often believe they qualify for inheritance tax relief – they will not. Unused allowances can only be transferred between spouses or civil partners. Unmarried couples face full IHT liability on any inheritance above the threshold. - Overreacting to IHT Fears
Some individuals are looking to rush to offload assets unnecessarily, wanting to transfer assets out of their name to reduce an inheritance tax liability that doesn’t exist. Only around six per cent of estates currently pay IHT.
Hudda explains that individuals should plan carefully, understand the thresholds, and seek advice before making significant financial changes.
Read the full article in The Daily Express here: HMRC warning as people trying to avoid tax could ‘unknowingly’ end up paying 40% levy
