An increasing number of UK families are expected to be liable for inheritance tax (IHT) this year – and they’re paying out more than ever before.

According to HMRC tax data, the total number of liable estates has increased 15 percent since last year to reach 30,000. The data also shows HMRC collected an unprecedented £5 billion in IHT over 2016/2017, so what do accountants need to know about this growing tax?

Since 2009, IHT has been fixed at 40 percent for assets of over £325,000. In April, the government amended this rate for first time by upping the “nil-rate band” by £100,000 for individuals that transfer their main home to their children. Despite this, there has been growing concern about the increased receipts for what some dub the “death tax”.

Tax officials have been accused of turning the screw on bereft families through aggressive scrutiny of estates and relief claims. And with £550 million wasted in IHT last year due to sloppy estate planning, accountants are more important than ever for ensuring clients don’t fall into the death duty trap.

Gifts that keep on saving

“It’s important to remind clients of the general allowances and exemptions which are available for IHT,” says Lucy Orrow, senior tax manager at Lambert Chapman, an accountancy firm based in Essex.

Whether it’s to help their children get on the property ladder or pay for a garden playhouse, families can give away £3,000 tax-free each year to reduce the value of an estate.

“Many people do not utilise this annual exemption allowance, nor are they aware they can carry any unused allowance forward one tax year,” says Orrow. “If husband and wife both carry the annual allowance forward, it can total £12,000 in one year.”

Orrow also notes that a lot of people fail to take advantage of the “small gift exemption”. Individuals can make small gifts of up to £250 to any number of family and friends each year, so long as they haven’t received gifts through another exemption: “With three grandchildren, birthdays and Christmas, that’s another £1,500 in presents available for each grandchild on each occasion with no IHT implications.”

The “potentially exempt transfer” is where IHT gets extra-complicated for families. Though it enables a donor to make an unlimited transfer of assets, they must live for another seven years to keep any amount above the IHT threshold free of tax.

“We take time to pull together a schedule of client assets and liabilities and confirm how they are held,” says Orrow. “We always advise clients to make a note of such gifts and the dates made for future reference, as they need to understand what is included in their estate and how gifts must be ‘free and clear.’”

Take care of business

Business owners can consider Business Property Relief as a means of reducing their IHT liability. This perk lets clients transfer business assets to their children without IHT charges, but the guidance of an accountant is invaluable for ensuring a client meets all the conditions for full relief.

“Traps await the unwary. Holding assets used in a partnership trade personally and allowing the partnership to use them will reduce relief to 50 percent,” says Danny Clifford, managing partner of Ensors, a chartered accountancy firm in Ipswich. “An agreement that creates a binding contract for the sale of a business interest to other partners or shareholders on death would eliminate the relief entirely.”

Will power

Clifford says that another key task for accountants is checking a client’s will maximises tax efficiency. A client may have taken pains to ensure that assets being held generate IHT relief, but this is pointless if the will is out-of-date or is too poorly drafted to leverage the full relief available.

“Assets left to a UK domiciled spouse are exempt from IHT. Leaving assets that would otherwise qualify for an IHT relief to such a spouse would mean that the relief is wasted on the first death,” says Clifford. “This relief could be lost entirely if the surviving spouse doesn’t qualify for the reliefs on their death.”

A charitable bequest presents another opportunity to minimise the impact of IHT. All gifts made to registered charities during a person’s lifetime are exempt, and bequests ordered through a will can lower the tax-rate on the remaining estate to 36 percent.

With tax liabilities rising, accountants are in a unique position to help clients steer clear of common IHT pitfalls. By strategically allocating cash and assets, and taking full advantage of exemptions, elder family members can ensure their wealth will work for their family long after they’ve departed.

Ebony-Storm Halladay is editorial operations assistant at Flibl. She researches and writes about finance, business, sustainability and technology.