Inheritance tax (IHT) receipts are rising at an ‘alarming rate’, hitting £5.3 billion over the past year to the end of February, new figures show. The IHT haul over the period is a record high, representing a rise of 13 per cent year-on-year, as the chart below shows.
The record sums in tax receipts put pressure on chancellor Phillip Hammond to follow through on plans to reform the system. In late January Hammond ordered a review of IHT, although detail was light in terms of timescale and there was no mention of an increase in the IHT threshold, which has remained at £325,000 since 2009.
Indeed, the static IHT threshold along with rising property prices have been the big drivers behind an increasing number of individuals having to pay death duties.
To address the latter issue the government introduced the so-called residence nil rate band (RNRB), which started being phased in last April. Under the RNRB married couples or those in civil partnerships will eventually have an extra £350,000 worth of IHT-free allowance per couple. However, it will not be fully phased in until the 2020/21 tax year.
Thereafter, though, IHT receipts should fall. The new allowance started at £100,000 per person in the tax year 2017/18 and will rise to £125,000 in 2018/19. It will then increase to £150,000 in 2019/20 and £175,000 in 2020/21.
Torsten White, a partner at Wilsons, the law firm, called the new IHT figures ‘alarming’.
‘Substantial portions of individuals’ wealth are now being taken by HMRC through IHT. The value of that IHT, somewhat worryingly, continues to rise at an alarming rate,’ he says.
He adds: ‘No one wants their children or other dependants to have to pick up hefty inheritance tax bills, so it is important to plan ahead as early as possible how to pass wealth on to children and grandchildren.”
‘With the residence nil rate band increasing £25,000 next year, and the slowdown we are seeing in inflation, it will be interesting to see whether the tax take from IHT starts to level off in coming years.’
*HMRC, year-end February 2018.