While there are plenty of politicians in the UK who don't think that some wealthier Britons pay enough tax (including inheritance tax - IHT), this interesting comparison across the world's wealthier nations shows Britain nearing the top payers.
Japan tops the charts with an effective IHT rate of 25%. Britain's effective rate (after taking account of the IHT allowances) is 17.5%. France and Spain have punitive IHT rates too but they also suffer from much more complex inheritance tax rules so it's even more difficult to make any direct comparison.
Whatever the prevailing rules, financial advisers and estate planners often refer to IHT as the "voluntary tax".
This doesn't mean an individual has any choice about whether or not to pay the tax due. It is because there are many ways in which IHT can be planned for and reduced or avoided.
Some of the main ways to reduce IHT are:
- Spend the money to reduce the total value of the estate to within the IHT allowance limits
- Make use of the transfer of spousal allowances on the death of the first spouse
- Gifts during your lifetime - there are many allowable gifts including 'Potentially exempt transfers (PETs)'
- The use of wills and trusts
- Donations to charity - if 10% or more of your net estate is left to charity then this reduces your IHT rate to 36% (from 40%). If all your estate is left to charities and you have no personal beneficiaries then there is no IHT to pay.
Estate planning can be a very complex and specialist area and so it is worth talking to a STEP qualified and experienced lawyer for help.
Inheritance tax is one of Britain's most hated duties, but how does our regime compare to the rest of the world? Sam Meadows 8 October 2017 If Donald Trump’s ambition to scrap inheritance tax comes to pass, America will join a growing list of wealthy nations where the practice of taxing people’s wealth on their death is being phased out – or abandoned altogether. By contrast, Britain seems increasingly reliant on a growing stream of death duty revenues. Despite a rapid succession of changes to inheritance tax rules in Britain, more and more tax is being raised this way. Rampant house price inflation and a protracted rise in share prices are part of the reason – but the fact that the basic inheritance tax threshold here has not been raised since 2009 is another.