Inheritance tax: It’s no longer a tax for the rich

‘No longer just a tax for the wealthy’: HMRC collects another £700m in inheritance tax as property prices rise

  • A total of £5bn was raised in the IHT between April 2021 and January 2022
  • It was 14% – or £700million – more than the same period a year earlier
  • Experts attribute the rise to soaring property prices
  • The average UK home is now just £50,288 below the IHT threshold
  • This threshold generally increases with inflation, but has been frozen since last year.
  • Do you need help planning your estate? Find a financial advice service

The government recorded a £700m rise in inheritance tax revenue between April 2021 and January 2022, with the increase attributed to runaway property price inflation.

New data from HMRC shows that £5billion was collected during this period, an increase of £700million – or 14% – on the same period a year earlier.

Experts have also warned that the IHT is no longer just a tax on “wealthy people” and that, thanks to the freezing of the threshold, many more people could end up with a high bill if they receive goods or other assets of a deceased person.

Inheritance: Rising property prices over the past 18 months meant those to whom a deceased person left a home were potentially subject to higher taxes

Shaun Moore, tax and financial planning expert at wealth management firm Quilter, said: ‘Sustained house price growth and asset price inflation have driven up the value of estates, which means higher IHT revenues for the government.

“The IHT was once seen as a tax on the wealthiest people, but the reality is that the average property in the UK is just £50,288 below the standard zero-rate bracket.

“With the NRB frozen until 2026 and house prices still rising, many more people could face a hefty IHT bill.”

The average house price was £275,000 in December, £27,000 more than the same month a year earlier, according to the latest figures from the Land Registry.

The zero-rate bracket under which estates are not liable for IHT generally increases with inflation, but in the 2021 Budget it has been frozen at £325,000 until at least April 2026.

This means that even if real estate prices rise rapidly, the value of property or assets that someone can pass on after death tax-free will not.

Inheritance tax is 40% on property passed on after a person’s death.

This could include their home, savings, or investments, for example.

Anyone can leave up to £325,000 in cash or assets tax free, and they also receive an additional £175,000 allowance on their home if they leave it to their children.

Inheritance tax is due when someone passes on property such as their house.  It currently comes into play when that person has donated money or assets worth £325,000 or more

Inheritance tax is due when someone passes on property such as their house. It currently comes into play when that person has donated money or assets worth £325,000 or more

All of the above is effectively doubled when combined with a spouse’s or civil partner’s allowance, meaning it’s possible to pass on £1m tax-free as couple.

Experts have said Chancellor Rishi Sunak may decide to make changes to the IHT rules in his next budget, but it’s not yet clear when that will happen.

Julia Rosenbloom, tax associate at financial services firm Smith & Williamson, said: ‘The Chancellor’s upcoming budget could make changes to personal taxes that could affect the feasibility of families passing on wealth to the next generation and, therefore, the level of IHT to be paid.

“It is important that families think carefully about their tax planning and take professional advice to ensure they are using their current allowances before any changes are introduced.

“Even if no direct changes are made to the IHT in the upcoming budget, many families can still expect to see their IHT bills increase in the coming years, given that the zero-rate band and zero-rate residency bracket have been frozen until at least April 2026.

“This brings more areas into reach on the back of rising real estate values ​​in particular.”

Increase: HMRC levied 14% more on inheritance tax between April 2021 and January 2022 than in the same period the previous year

Increase: HMRC levied 14% more on inheritance tax between April 2021 and January 2022 than in the same period the previous year

A recent study by insurer NFU Mutual found that only 18% of Britons think the IHT is fair.

More than half (57%) thought it was unfair, while a quarter of people didn’t know.

HMRC’s total revenue from April 2021 to January 2022 was £597.6bn, up £124.8bn from the same period a year earlier.

The other areas in which tax revenues have increased are stamp duty (55%), corporation tax (27%), hydrocarbons (23%), inheritance tax (16%), income tax, capital gains tax and national insurance. contributions (14 percent).

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