The most recent figures from HM Revenue and Customs (HMRC) indicate that the inheritance tax refunds they received grew to PS300 Million to PS1.8bn over the three month between April 2022 and June 2022.
This is an increase over similar levels prior to the year and is in line with the trend of increasing in the past ten years.
One out of every 25 estates pays inheritance tax however, the imposition of a limit on inheritance tax thresholds has been lowered and the highest inflation levels for the past 40 years, and years of increases in house prices are pushing more estates to the threshold.
If you pay this Death tax Wealth Club calculations suggest that the tax bill will rise to nearly PS266,000 for at the end of this year’s tax season. This is an increase of 27% from the average of PS209,000 that was paid only three years ago.
Inheritance tax is usually payable at 40% above certain thresholds (noting that you are able to pass funds IHT without cost to your civil partner or spouse who’s estate is subsequently increased and could later have to pay IHT upon their death). The primary threshold is the nil rate band, which is available to the majority of people living in the UK and allows as much as PS325,000 the estate to be handed over without paying any IHT. Additionally, there is an Residence Nil Rate bands that is worth PS175,000, which allows the majority of individuals to transfer their family home with less tax to their direct descendants, however the threshold is lowered for estates of more than PS2 million, and isn’t accessible for estates worth more than PS2.35 million. However the nil rate band has remained at PS325,000 until April 2009. The rate of inflation has increased by 45percent over the past year and the average price of a house has grown by 67 percent.
Alex Davies, CEO and the founder of Wealth Club said: “The Treasury earned an additional PS300 million in inheritance tax in the months of May through June 2022, compared to the same period prior to that time, and this rise is driven by rising house prices and years of frozen allowances that are currently being slashed by the rapid rise in inflation. Only four percent of estates are paying inheritance tax, however given that the main residence and nil rate bands for nil rate are set to be frozen until April 2026 at the earliest It is likely that the estates of many people who earn regular incomes and homes of average value are likely to be bailed out by the most feared of taxes. Furthermore, with the federal budget under pressure from all directions, there won’t get any relief from this situation anytime soon.
The good news is that there remain many legal and ethical methods to transfer inheritance tax free to your heirs. It is the reason why inheritance tax in certain circles is often referred to as a “voluntary tax”.”
