Variety of households paying IHT rises 17% with common invoice at £214,000

The variety of households paying inheritance tax (IHT) has elevated by 17 %, a brand new report printed by HMRC exhibits.

In the 2020/21 tax 12 months, complete IHT liabilities rose 16 % to £5.76billion whereas the typical inheritance tax invoice fell by one %, down £2,000 however nonetheless to a staggering £214,000.

According to the report, the rise is probably going because of each the knock-on results of the COVID-19 pandemic on the quantity of wealth transfers and IHT-liable deaths in that 12 months, in addition to continued rises in asset values.

Ian Dyall, head of property planning at wealth administration agency Evelyn Partners, mentioned: “Inheritance tax has grabbed some headlines recently with the possibility that it will become a policy issue at the next general election.

“Given the steadily rising tide of IHT receipts taken by the Treasury, driven in large part by frozen nil-rate band thresholds and rising asset prices, it’s perhaps not surprising that this already unpopular tax is now widely regarded as another ‘stealth tax’.”

Mr Dyall mentioned that, whereas there was undoubtedly a COVID-19 mortality impact on the IHT tax take within the interval addressed by this knowledge, extra up-to-date statistics do present that annual IHT receipts have continued to surge.

He defined: “They have more than tripled from about £2.3billion in 2009/10 to an estimated £7.1billion for 2022/23, and have also nearly doubled as a percentage of GDP from 0.15 percent to 0.28 percent during the same time.”

HMRC’s newest month-to-month knowledge confirmed IHT receipts hit a staggering £2billion between April and June 2023, which displays a whopping £200million improve from the identical three-month interval final 12 months.

Mr Dyall attributed this huge improve to frozen tax allowance thresholds mixed with hovering house prices and asset values.

He mentioned: “As the nil-rate band of £325,000 and the residential nil-rate band of £175,000 have not been increasing with inflation – as many tax thresholds used to – and are not due to, more families and more assets have been dragged into the IHT net thanks to rising property prices and investment asset values.”

Although Mr Dyall added that it’s “worth noting” that within the mild of weakening asset costs over the past 12 to 18 months, many households could have overpaid IHT; the invoice should be estimated and settled with HRMC by the tip of the sixth month after loss of life.

He mentioned: “If assets are then sold at prices lower than had been estimated then it is up to beneficiaries to reclaim the overpaid tax.”

According to the annual evaluation, probably the most used tax reduction was the exemption between spouses and civil companions, which sheltered £15.7billion of property from tax. Business Property Relief (BPR) was the second most respected, shielding as much as £3.2billion of property.

The report additionally indicated a big discount within the variety of trusts in existence over latest years. Mr Dyall mentioned: “There could be a number of reasons for this. In 2006, there were significant changes to the inheritance tax treatment of trusts.

“Most new trusts created during lifetime since that date are potentially liable to a small (up to six percent) inheritance tax charge on each 10-year anniversary. Some trustees may be choosing to wind up trusts before the next anniversary.”

He added that there has additionally been a rise within the “administrative burden” of trusts, with the vast majority of trusts now needing to register on-line as a part of EU cash laundering laws.

Mr Dyall mentioned: “The reduction in the use of trusts is disappointing as they can be a useful solution to many of the issues that worry people when passing on assets to the next generation. For example, they can protect assets in the event of divorce or bankruptcy, or ensure that the assets are invested sensibly and used wisely.”

Shaun Robson, head of wealth planning at Killik & Co mentioned inheritance tax has been a “big earner” for HMRC this previous tax 12 months and it’s “likely” to be a report 12 months of IHT.

He mentioned: “Even if the future of it is seemingly up in the air, people should be considering action to reduce their tax liabilities as many families could be handed a surprise tax bill.”

From gifting to utilising exemptions, discover out extra about methods to reduce inheritance tax liabilities.