Inheritance Tax (IHT) Receipts by HMRC Up 18% Since 2022

By Kate | March 21, 2023

HMRC has released data that Inheritance Tax (IHT) receipts have increased by 18% in January 2023, compared to the financial year prior – currently, receipts are at £5.9 billion, which is £900 million higher than last year. This increase has been driven by HMRC targeting high-value estates, the increase in house prices from 2020-2022, and the freezing of tax allowances and thresholds. Carry on reading to find out more, or contact us today for tax advice.

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What is Inheritance Tax (IHT)?

Inheritance Tax (IHT) is a 40% tax on the estate (which includes money, possessions, and property) of a person who has passed away. It’s payable by their loved ones, and only charged on the part of the estate that exceeds their Nil Rate Band (NRB) of £325,000, the current tax-free threshold. There’s also an additional Residential NRB of up to £175,000 for homeowners with children (if the person qualifies).

Why Have IHT Receipts Increased?

The rise in IHT receipts has largely been driven by ever-increasing UK house prices over the last few years, with an increase of over 20% being seen since the start of the pandemic. And, while Inheritance Tax used to be considered as a tax only for the ‘rich’, the freezing of tax allowances and thresholds, paired with house price inflation, has resulted in more and more ‘normal’ people paying IHT. If you’re unsure whether this could apply to you, please call us today.

UK Average House Price Changes: 2020-22

As the data outlines below, every type of property has seen a price increase between 2020 and 2022, with flats seeing the smallest increase, and detached houses seeing the largest.

UK average house price by property type	All	Flat	Terraced	Semi-detached	Detached
Average price January 2020	£237,895	£142,792	£183,660	£239,605	£359,725
Average price December 2022	£286,515	£161,819	£222,403	£294,965	£453,070
Percentage growth	20.4%	13.3 %	21.1 %	23.1 %	25.9%
Price change	£48,620	£19,028	£38,743	£55,361	£93,345

Outside of the average data, some regions have even seen the average price of a detached house jump by more than £100,000.

HMRC Challenging Property Valuations

There have also been numerous reports that suggest HMRC has carried out more enquiries that target high-value estates – if they believe that the property valuation is inaccurate or misleading. Most valuations are carried out by chartered surveyors and other probate property experts, however HMRC has argued that in some cases, various aspects have been overlooked – e.g., the property’s potential, which could add to its value.

Executors should be particularly wary of submitting a low valuation in comparison to surrounding properties, as if a value stands out, HMRC could check sale prices of neighbouring homes. If an exceptionally low valuation has been submitted, you could be liable for penalties.

On the flipside, if the property has been overvalued, you could reclaim Inheritance Tax if it is sold for less than the valuation price – within four years of the owner’s death.

Planning to Reduce Inheritance Tax

As Inheritance Tax thresholds have been frozen for an additional two years, IHT receipts will continue to remain high. However, there are many opportunities to reduce IHT with proper planning, including:

A tax efficient Will
Simple gifting
Loan Trusts
Family Investment Companies (FIC) – an alternative to a family trust
Enterprise Investment Schemes (EIS) – full IHT relief for the investment’s life, once the shares have been held for two years
Life Assurance – this won’t reduce your IHT bill, but if set up to pay out in the Trust, it will help to cover tax costs
And much more

The above depend on individual circumstances, but it’s essential to act now, as many of these measures depend on acting promptly, and surviving sufficient years. Plus, if an Inheritance Tax Account is delivered early, with full and well-considered information, it significantly reduces the risk of HMRC enquiries.

Need IHT Advice?

We have years of experience in Inheritance Tax and Estate Planning, so you can rest assured that your affairs will be in safe, expert hands. Our professional knowledge and skills could help you reduce your future tax bill – if you’d like to find out more, you can message us through our online form, call 01743 562430, or email hello@mercianaccountants.co.uk.