Individuals and families in the UK paid £3.14 billion in inheritance tax (IHT) in 2012/13, official figures from the Office for National Statistics have shown. It comes as a result of the freeze in the IHT threshold – held at £325,000 since April 2009 – and a recovery in property prices, which has pushed more families into IHT liability. HM Revenue & Customs collected eight per cent more IHT in 2012/13 than it did in the previous tax year.

Key facts

• IHT must be paid if a person's estate is valued over £325,000 or £650,000 for a married couple or civil partners for the years 2013/14 to 2018 (provisionally)

• Assets or an estate, defined by HMRC, can include property, land, savings, investments, pensions, life insurance policies, businesses, motorcars, jewellery, antiques and foreign assets.

• The full rate of IHT is 40 per cent.

Ways to minimise your IHT liability

There are many legitimate ways to reduce your inheritance tax bill, but forward planning with the help of a professional adviser is essential. Some things to consider include:

• The transfer of assets: some gifts, such as any given to a spouse or partner providing they are permanent residents of the UK, are tax-free

• Giving gifts: individuals are entitled to an 'annual exemption' on gifts which allows them to give up to £3,000 away each year. Marriage gifts and small gifts, up to specified limits, fall into the exempt category, as do donations to charity or political parties

• Transferring the unused nil-rate band of a late spouse or civil partner to the surviving spouse after the first death

• Leaving your estate to charity: leaving at least 10 per cent of your estate to charity can reduce the IHT rate to 36 per cent on the remainder of the estate.

Talk to us about inheritance tax planning and about the different ways you may be able to reduce your inheritance tax liability.

A shortage of affordable homes
and squeezed incomes has led to a drop in the number of first-time home buyers,
according to data from the Council of Mortgage Lenders (CML). In contrast, the
CML found a huge expansion of the buy-to-let sector, there were 400,000
buy-to-let loans worth £39 million in 2003, compared to 1.45 million loans
worth £164 billion in 2012.

Although rising rents and
increased demand for rental properties are an attractive option for buy-to-let
investors, with many returning to the market, the returns now are smaller than those
a decade ago. According to research from YouGov SixthSense, landlords received
4-6 per cent in rental returns between 2002 and 2006; falling to between 1-4
per cent since 2007. The profit from capital gains
has also fallen, with landlords seeing 15 per cent in capital gains before
2003, 7-8 per cent between 2003 and 2006, and less than 4 per cent since 2007.

Many landlords also have 'unrealistic
expectations' of the profit to be made from buy-to-let investments by failing
to take inflation into account. Other deductions from rental income include
mortgage interest payments, agency fees and other management expenses.

Simon Mottram, YouGov's financial services consulting director, said
many buy-to-let landlords had unrealistic expectations of the amount of money they
would need to invest into their properties, as well the likely returns.

He said: "The money illusion can mask a great deal of risk that
people can put themselves in because of falling returns from increasing
inflation as well as the cost of additional expenses. Potential buy-to-let
landlords should go into property ownership with their eyes open, being aware
of the costs and potential pitfalls as well as the possible gains."

Please get in touch to discuss your investment plans.