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The inheritance tax conundrum – what should you do about it?

19 September 2023

For most of us, compromise is the best solution, taking sensible steps to mitigate the liability while ensuring our own financial position is secure.

By Andrew Chastney,

Canaccord Genuity Wealth Management

Earlier in the summer, figures released by HMRC indicated that the government took a staggering £1.2bn in inheritance tax (IHT) in the months of April and May. That is a colossal £21m a day and it was around £100m higher compared to the same period in 2022. This follows a record-breaking year where £7.1bn was raised in IHT for government coffers.

So, what’s behind the rise? A big contributory factor is that more and more people are getting trapped by the frozen IHT threshold, which is due to remain at £325,000 until April 2028. If you think that the average house price in the UK in 2023 is £286,000 (ONS), which is more than £100,000 higher than it was 10 years previously, when it was £175,826, it is no wonder that more people are getting caught in the IHT net. The message is that we all need to be vigilant where IHT is concerned and how it will affect our financial legacy.

There is no other tax guaranteed to split opinion like IHT. Some are appalled by the gross unfairness of it, eating into the hard-earned wealth (that has already been taxed) that they want to pass on to their children, grandchildren or other beneficiaries. Others regard it as fair, a tax that aims to redistribute wealth in society.

A lot of us are somewhere in the middle, wanting to reduce our IHT liability, but also accepting it’s a tax that we have to pay on our estate.

IHT is a widely misunderstood tax. A lot of people don’t realise that IHT can apply to lifetime gifts, as well as the liability on an estate at the time of death. And the fact that it is confusing isn’t helped by the daunting range of IHT forms on offer.

To cap it all, it is a relatively low revenue raising tax. The £7.1bn raised in IHT only equates to 0.74% of the £950bn tax revenue that could be collected in the 2023/2024 tax year.

Adam Smith’s four ‘cannons of taxation’ are still a sound test of an effective tax – how do you feel IHT measures up on the grounds of equity (fairness), certainty, convenience, and economy (efficiency of collection)?

The range of responses to this question reflect the reasons for IHT being a ‘political’ tax and that’s why we could see radical changes being proposed to IHT as we move closer to an election.

Based on current IHT rules – and even though there are lots of considerations – here are five IHT points to bear in mind.

Allowances and exemptions

We can’t say this loudly enough, but you should consider making use of available allowances and exemptions. Many of these are unchanged since IHT was introduced in 1986, so unfortunately have been significantly eroded by inflation.

Despite this, making use of the £3,000 annual gifting allowance each year can really add up. This is simple and effective.


Surplus income

If you have surplus income on a year-on-year basis, after deducting your regular expenditure, you may be able to use the normal expenditure out of income exemption to make regular gifts, which are immediately outside the IHT net. If you don’t keep detailed records, however, this one is not for you.



Gifts to individuals, or into trust if you prefer, can be a very valuable way of removing value from your estate even if you cannot use an allowance or exemption. Such gifts are generally outside of your estate IHT net after seven years. Although be careful – gifts to trust can incur lifetime IHT in certain situations.

It also needs to be remembered that gifting should not just be thought of in IHT terms – you should make gifts because you want to, not just because of the tax benefits.



Gifting to charity or leaving money to charities as a legacy in your will, will both be IHT free. And if you leave 10% or more of your net estate to charity following your death, the estate IHT rate reduces from 40% to 36%. This effectively redirects your wealth from HMRC to the charities that you care about.



Make use of available reliefs is another important point. For example, you can invest in assets benefiting from business relief – EIS, investing in qualifying AIM market shares – all these asset classes come with associated IHT benefits.

Investing in this way, you retain ownership while the assets are IHT free on your death. There are various conditions – for example, the assets must be owned for at least two years and be owned at the time of your death. This is a complex area where advice is essential.


In summary

These are just five of lots of factors that you need to take into account. Getting an up-to-date property evaluation may be an eye opener– as mentioned earlier, the price of your average property in the UK has risen by over 50% in the past 10 years, so understanding what your property is worth as part of your estate will help you understand your IHT liability.

So, can you get out of paying IHT? In a nutshell, not usually. But for most of us, compromise is the best solution, taking sensible steps to mitigate the liability while ensuring our own financial position is secure.

Andrew Chastney is a technical specialist at Canaccord Genuity Wealth Management. The views expressed above should not be taken as investment advice.

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