With the IHT threshold not increasing in over a decade, a growing number of estates are getting caught in the net.
A record number of estates are paying inheritance tax (IHT), according to statistics from the HM Revenue & Customs (HMRC).
In total, 28,100 estates paid IHT in the 2016-17 tax year (the most recent data to be released), which represents an increase of 15% from the year before, when 24,500 estates paid the tax. In total, £5.38 billion was collected by HMRC, a new record.
There are a couple of key drivers. First, the continued growth of house prices, particularly in London and the South East of England has seen more estates become liable for ‘death duties’. The impact can be seen in the new figures showing that London and the South East pay 45% of inheritance tax in the UK.
At the same time, the IHT threshold has not been in increased in over a decade, with the current £325,000 threshold being in place since 2009. As Rupert Wilkinson, a partner at Wilsons, a law firm, notes: “The last time the IHT threshold was increased, Gordon Brown was prime minister.”
As a result, IHT has seen a growing number of estates falling under its net – particularly those who have benefited from the past decade of strong house price growth. According to the law firms Wilsons, had the threshold been increased in line with inflation, it would now stand at £432,000.
To address the issue, the government introduced the so-called residence nil rate band (RNRB), which started being phased in from April 2017. 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.
Wilkinson says: “IHT was intended to be a tax on only the very wealthiest estates, but if it continues on the same course it risks becoming a general tax on Middle England.”
“The IHT threshold needs to rise if the tax is to remain limited to the very wealthiest estates as originally intended.”
Inheritance tax allowances are very high and I do not support them increasing any further particularly while support care costs for the elderly are so little. I am taking no action to protect my estate from inheritance tax and I am content with reverting some of my wealth to the state to fund better services for our people.