Inheritance tax planning allows super-rich to pay half as much
The UK's super-rich are paying just half the effective inheritance tax rate of many smaller estates, according to an analysis of HMRC data by Canada Life.
Estates worth £10m or more paid an average of 10% tax to the exchequer in the 2015-16 tax year compared with an average 20% tax paid by estates worth £2m-£3m, according to data released by HMRC.
The data comes from HM Revenue & Customs inheritance tax forms for the 2015/16 tax year.
Not everyone will want to adopt high risk strategies with savings built up over a lifetime at a time they could be considering using these to supplement income in retirement"
The law states that estates should pay 40% tax on assets above £325,000 - or above £450,000 if the family home is given to children or grandchildren. But Neil Jones, the market development manager at Canada Life, said the richest of the rich often did not pay anywhere near that rate because they had access to "a myriad of potential solutions in an adviser's kitbag to help mitigate IHT [inheritance tax]".
The heirs of the late sixth Duke of Westminster paid no inheritance tax on the bulk of his £8.3bn family fortune following his death in 2016.
"This difference in the net tax rates paid by estate isn't always down to the value of the estate or the different type of assets held in an estate," Jones said. "It's often about a willingness to plan."
Jones added some aspects of IHT were ripe for reform. He said: "As it currently stands, some forms of equities bought just two years before death attract 100 per cent inheritance tax relief. The relief was originally created to prevent a business being sold when the owner dies and has since been broadened.
"Not everyone will want to adopt high risk strategies with savings built up over a lifetime at a time they could be considering using these to supplement income in retirement."
Canada Life called for IHT to be simplified, warning the piecemeal nature of the regulations can make it an uneven playing field.
"It will be interesting to see the second paper from the Office of Tax Simplification, looking at reliefs, when it is released in the spring and what it recommends," Jones said.
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