HMRC has reported a record £5.19 billion delivered by Inheritance Tax for the year 2107-18. This represents an 8 per cent, or £388 million increase on 2016-17. Although, there has currently been a slight recent fall to 5.18bn this year due to the slowing down to the rise in residential property prices, the take from IHT over the long term is expected to continue rising, despite the introduction of the new £1million own home allowance, with one in ten families forecast to pay inheritance tax in future compared to about one in 20 now. Treasury figures show they are expected to hit £6.5bn in 2022.
The HMRC figures showed that the net capital value of estates increased by £17billion to £79billion over the six years to 2015-16, with around 54 per cent of this increase arising out of residential property. Not surprisingly estates in West, North-West and South-West London pay more than anywhere else in the UK. The majority of estates in Guildford were liable for IHT, with Brighton following second. In Scotland, the total number of estates paying tax was 1,194 – slightly less than the combined total of Guildford and Brighton.
Again, no real surprises here as the kinds of Wealth Insight reports produced by Barclay Wealth have long identified London and the South East as the centres of UK prosperity. Guildford has been identified as leading the way in the South East with more than 63% of the population earning above the national average. Barclay Wealth Insight Reports also identified these areas closely with the holding of significant wealth in alternative asset classes such as precious jewellery, fine art paintings and antique furniture, with strong interests in classic cars and wine. Wherever such assets are held, the passing on of such treasures to the next generation have also been unanimously ranked highly.
As noted above, the increase in the net capital value of estates by £17billion to £79billion over the six years to 2015-16 attributed around 54 per cent of this increase to the rise in residential property. That still leaves 46% to be accounted for.
How much of that 46% may be held in the alternative assets classes describe above? A number of these will have seen very substantial changes over the years, particularly when they come into the owners’ possession by inheritance and where it is intended to pass them on to subsequent generations. Even a few years ago, a Global Briefing from Knight Frank identified that a rise of 154% over a ten year period since 2004 in the value of Barbara Hepworth’s Curved form had outperformed the 135 per cent rise of London prime property over a similar period.
While Roy Jenkins, as Chancellor of the Exchequer, once famously described IHT as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”, the tax is not quite as straightforward as his words might suggest. However, there a number of ways to mitigate it, and many of the items that fall into the alternative assets class can provide opportunities for intelligent use of tax planning especially when the intention is to benefit the next generation. The problem is that while many are likely to have a fairly realistic value of their real property and their financial assets, it is generally much less likely that they will have anything like an accurate valuation of their holdings of jewellery, fine art or collectible assets, thus making any sensible long term planning a matter of guess work. The expected increase in the market for IHT advice should ensure that, where clients are known to have significant alternative assets classes, that advice should urge getting a handle on their value less their Hepworth becomes not so much a Curved Form as a Curve of unpleasant learning.