An additional £700million in IHT has been collected since last April, compared to the previous year, following the Chancellor Rishi Sunak’s move to freeze allowance thresholds. Overall, there was a 16 percent increase in inheritance tax receipts in the financial year to January 2022. Despite this, experts are letting families know they can save upwards of £1million on their IHT bill.
Tax receipts from those giving away money and assets since April have soared past £5billion, according to data from the Office of National Statistics (ONS).
In comparison, £4.3billion was collected over the same period by HMRC last year, showing yet another dramatic increase.
Experts cite the recent surge in house prices and Mr Sunak’s allowance freeze as to why inheritance has become more prone to IHT.
Inheritance tax is paid on someone’s estate, including their money, possessions and property, after they passed away.
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Currently, the standard IHT rate stands at 40 percent and is only levied on the part of estates above the £325,000 tax-free threshold.
As of 2017, an additional £175,000 residence nil-rate band has also been in effect for taxpayers.
This threshold is supposed to rise in line with inflation but the Chancellor froze this tax-free limit to bolster public finances.
Darran Harrison, a wealth planner at financial firm Kingswood, outlined why IHT receipts are on the rise.
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Mr Harrison said one key factor which is likely contributing to the increase in IHT receipts is the soaring housing market, despite the stamp duty holiday drawing to a close at the end of September 2021.
He explained: “The latest figures showed a record high average UK house price of £288,000, an increase of 9.8 percent on the year.”
Furthermore, the tax expert emphasised how the nil rate and residence nil rate band freezes are contributing to the most recent hike in receipts.
He added: “Another key factor behind the latest hike in IHT receipts is likely to be the fact that both the nil rate band and residence nil rate band have been frozen until at least April 2026,
“This has resulted in many families receiving increased inheritance tax bills as more estates are brought into scope on the back of rising property and share prices.”
To help households save money on their IHT bills, in light of more families being liable for it, experts are sharing how they can save as much money as possible.
According to Mr Harrison, families can save as much as £1million by taking advantage of deals offered to couples.
The tax expert said: “This tax year, you can pass on £175,000 of your property tax-free, which is effectively doubled to £350,000 when combined with the allowance of your spouse or civil partner.
“That’s layered on top of your inheritance tax allowance – or nil rate band – of £325,000, meaning it is possible to pass on £1million inheritance free as a couple. Any above this is taxed at 40 percent.”
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