Inheritance tax mapped: 8 of the 10 fastest growing IHT regions in the UK are low income | Personal finance | Finance
New research from leading private wealth law firm Boodle Hatfield has found that eight of the 10 fastest growing areas paying inheritance tax (IHT) comprise the lowest incomes in the country. The company attributes this in part to the rate at which the IHT begins to be paid, having not changed in over a decade.
Inheritance tax is applied to the estate, such as money, property and possessions, of a deceased person and can land families with a large bill to pay.
The zero rate bracket, which is the maximum threshold a person can inherit before paying IHT, has been frozen at £325,000 since 2009.
However, with inflation rates in the UK soaring and house prices rising, it is argued that this threshold is now far too low and hitting many households much harder.
But the hardest hit, according to Boodle Hatfield, are constituencies comprising those whose annual salaries are well below average.
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Boodle Hatfield research found Cardiff North saw the number of estates responsible for IHT rise by 47%, from 30 in 2014-15 to 44 in 2019-20, despite average wages in the region 16% lower % to the national average.
The average salary in Cardiff North is £26,736, while the national average salary is £31,646.
With an average salary of £21,927, West Worcestershire has seen the number of areas subject to IHT jump by 40% over the same period, even though average salaries in this area are 31% below the national average .
The other six lower-than-average income constituencies that pay more IHT include:
- Hemel Hempstead – £21,190
- Daventry – £28,956
- Chelmsford – £29,711
- Hornchurch and Upminster – £29,694
- Macclesfield – £30,195
- Aylesbury – £31,006
Kyra Motley, partner at Boodle Hatfield, explained that with inflation in the UK reaching close to 10%, the need to increase the zero rate band is more urgent than ever.
Ms Motley said: ‘Over the past decade a significant proportion of the non-taxable estate relief has been eroded through a process known as the ‘tax brake’.’
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“Ordinary families are increasingly faced with inheritance tax bills at a time when the cost of living is getting heavier.”
The Treasury said it raked in a further £70million in inheritance tax over the past year, taking IHT’s income to a record high.
But the Office for National Statistics does not see this trend reversing any time soon. It predicts that by 2026-27 inheritance tax will rise to £7.6bn a year.
However, there are some ways to increase the IHT threshold, from optimizing gift exemptions to maximizing certain reliefs. Click here to read more.