A record sum of nearly £5bn has been raised in inheritance tax, a four percent boost for the Government on last year’s figures and with an even bigger increase looking set to come next.
HMRC has reported collecting £4.84bn in the tax year 2016-17, significantly up on the £4.67bn generated in 2015-16. And figures for the first three months of 2017-18 show a massive year-on-year hike of 22%, suggesting that this year’s inheritance tax (IHT) haul could be bigger still - and leaving many asking how they can best protect and pass on their family wealth.
IHT is a tax paid on a person’s estate - or assets - following their death. Since 2009, it’s been set at a rate of 40% on all assets over a threshold of £325,000, although other changes were introduced in April, including couples now being able to pass on properties worth up to £1m tax-free and a £100,000 tax-free family home allowance, set against the value of a property left to children or grandchildren.
It’s natural that most of us would prefer our assets to go to family members, rather than the taxman, following our death, and there are several valid ways to ensure this happens, including making a will, making use of exemptions such as ‘gifts’ to spouses, children and grandchildren and releasing equity in your home.
Another means is to take out life insurance, enabling you to leave a lump sum to named beneficiaries on your death. There are several types of life insurance on the market, with the best options in these circumstances being a ‘term’ policy and whole of life cover.
Term life insurance, also known as a ‘fixed’ policy, is taken out for a set number of years and pays out if you die within the term. Whole of life cover, on the other hand, runs until you die, guaranteeing a payout (for this reason, it’s also known as life assurance). Whether you opt for term or whole of life insurance, the policy needs to be written in trust to be excluded from the overall value of your estate.