Inheritance Tax Bills at Record High
Introduction
Recent data from the Treasury has revealed that Inheritance Tax (IHT) bills are rising to record levels – with experts warning that more grieving families are being “dragged” into paying the levy.
In 2021-22, HMRC received a massive £6.1 billion of IHT – the tax paid when a person passes away – which represents a 14% (or £729 million) increase from the year prior. It’s also the largest single year increase since 2015-16.
Receipts in June alone hit monthly highs of £726 million, and quarterly highs of £1.8 billion. And worryingly, with thresholds being frozen, the number of families paying IHT is set to double by 2026.
Why the Increase in IHT Receipts?
HMRC say that the sharp rise of Inheritance Tax receipts in 2021-22 could be a combination of the following:
– Knock-on effect of Covid-19 on wealth transfers and deaths
– Asset valuations continuing to rise
– Freezing of ‘Nil Rate Band’ thresholds at 2021-21 levels until 2025-26
IHT-liable deaths currently sit at 3.76% of the UK total – a 0.02% increase from 2018-19, which reverses the fall seen last year. It’s also the first rise in this proportion since 2016-17, before the introduction of the new ‘Residence Nil Rate Band’ threshold (the amount that an individual can pass on without any Inheritance Tax liabilities, currently at £175,000).
Impact of Nil Rate Band Threshold Freezes
The Nil Rate Band freezes have achieved a ‘fiscal drag’ – asset prices have continued to rise over the years of the pandemic and house prices have grown rapidly. As a result, many taxpayers have been pushed into higher tax brackets, which has increased the level of IHT receipts.
Fall in Relief and Exempted Transfers
It’s also worth noting the following Treasury data:
1. The relief for agricultural and business property (APR and BPR) set against assets fell by 20% between 2018-19 and 2019-20
2. Exempted transfers to qualifying charities also fell by £100 million
These reductions in IHT relief and IHT-exempt transfers could have contributed to the increase in receipts.
Will IHT Receipts Continue to Rise?
Looking at the data, Inheritance Tax receipts will continue to rise, with the OBR (Office for Budget Responsibility) predicting a huge £8.3 billion by 2026. Why the surge? Firstly, house prices are ever rising, and the largest share of an estate is usually the residential property. Following the pandemic, people are also gifting more to their family to help through challenging times. And, unfortunately, more deaths have arisen in the elderly population.
Get Inheritance Tax Advice
Concerned about rising levels of Inheritance Tax? We have years of experience in Tax and Estate planning – if you’d like to arrange a free consultation, fill in our contact form here. Alternatively, you can call us directly on 01743 562430, or email hello@mercianaccountants.co.uk.
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