HMRC raked in a whopping £7.1billion in inheritance tax in the first 10 months of this financial year, official figures show. Data released by HM Revenue & Customs on Friday (February 20) showed the take was £100million more than was raised over the same period last year.
Isaac Stell, investment manager at investment service, Wealth Club, said new rules bringing pensions into the scope of IHT and frozen allowances mean more families are set to be dragged into the tax net. He added: “At the same time, HMRC’s tougher enforcement is adding further pressure at what is already a difficult time for bereaved families.” Wealth Club said recent reporting highlighted mounting public frustration that IHT was impacting middle-income households more, particularly those whose main wealth is tied up in their home or retirement savings.
The lifetime nil-rate band of £325,000 and the residence nil-rate band of £175,000 remain frozen.
As property price inflation outpaces these frozen thresholds, more estates are being dragged into inheritance tax liability.
Most unused private pensions will be counted as part of an individual’s taxable estate from April next year in a major expansion of IHT. Executors will be required to report and pay any tax due on pension assets.
While qualifying business and agricultural assets are exempt from IHT up to £2.5million, any excess over that amount will be taxed at an effective 20% rate.
Wealth Club recommended families who want to mitigate their IHT exposure should look at gifting, revisit their pension strategy and consider relief-eligible holdings.
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Ian Dyall, head of estate planning at wealth management firm Evelyn Partners, said recent monthly increases in the overall IHT take have been fairly modest compared with the past trajectory.
He said this could reflect the levelling off of UK house prices over the last few years. Mr Dyall added: “I suspect underneath the overall figure there will be an upturn of IHT taken from UK regions outside the South East.
“The South East has traditionally made up the lion’s share of IHT liabilities and that will continue to be the case for a long time, given several decades of wealth creation in the region.”
The expert said property values in and around London have levelled off in recent years and even fallen in real terms in some areas compared with general inflation.
This compares with other parts of the country where house prices have seen double-digit annual increases.
Mr Dyall said: “That could mean many families in the South West, Midlands and North of England are being dragged into the potential IHT net by the increase in their home’s value, probably without realising it.”
He suggested families whose property wealth looks as if it will use up their nil-rate bands consider some form of estate planning.
This particularly applies to those with pensions that could add to their estate’s taxable value from April 2027, according to Mr Dyall.