Enterprise Investment Schemes, Business Property Relief and AIM ISAs will become increasingly important tools in the fight against rising IHT bills, says Wealth Club.
The latest HM Revenue and Customs figures showed that the Treasury raked in £2.4 billion in inheritance tax receipts in the three months to July 2022, up £300 million on the same period of last year.
While Liz Truss and Rishi Sunak have both suggested they will review inheritance tax rules, Alex Davies, founder of Wealth Club, says it is unlikely to top their emergency Budget once they step into power. Instead, investors should look at ways to use tax efficient tools to reduce their IHT liability.
Davies said: “Cutting inheritance tax will do nothing to ease the cost of living crisis engulfing the country and it is a real cash cow for the Treasury too.
“The increase in the monthly IHT take is being driven by soaring house prices and years of frozen allowances. With rampant inflation the effect of freezing allowances will only increase in the years ahead unless the new Prime Minister chooses to intervene.”
Figures have shown that one in 25 estates pay inheritance tax but inflation and house price increases will see more people fall into the net.
Wealth Club forecasts that the average bill could increase to just over £266,000 in the current tax year, a 27% increase in just three years.
In light of the rising figures, Wealth Club says investors should utilise a host of tax efficient investments to pass on money free of inheritance tax.
The Enterprise Investment Scheme and the Seed Investment Scheme both offer generous tax reliefs and qualify for Business Property Relief (BPR).
Investing in companies that qualify for BPR means investors can benefit from full IHT relief if they have had held the shares for at least two years and still on their death.
AIM ISAs, in which AIM-listed companies qualify for BPR, are also an increasingly popular way of mitigating IHT. Investors must hold the shares for at least two years and if they still hold them on death, they could potentially pass them on free of inheritance tax.
