The money raised via inheritance tax rose by 4 per cent in the 2021/ 22 tax year according to latest HMRC statistics.
Figures show that while a marginally higher proportion of UK deaths resulted in an IHT charge. However just 4.39 per cent of UK deaths resulted in an IHT liability – a 0.66 percentage increase on the previous year.
The rising value of people estates, including property, resulted in a significantly higher tax charge though, with IHT liability in this year standing at £5.99 billion – a rise of £0.23 billion (4 per cent) on the previous year. The higher number of death post during this period, which followed the Covid pandemic may also resulted in higher IHT payments.
Although the new chancellor Rachel Reeves has pledged to to increase income tax, VAT or national insurance – no such promise has been made about inheritance tax. There has been speculation that changes to pensions taxation could see surplus pension funds subject to IHT. This does not happen at present in the vast majority of cases.
These are the latest HMRC figures, although they relate to two years ago. This time lag reflects the often lengthy process of granting probate and settling a person’s estate after death
Laura Hayward a tax partner at professional services and wealth management firm Evelyn Partners says: “With Chancellor Rachel Reeves warning she needs to plug holes in the public finances, inheritance tax has been widely touted as a possible target.
“The 4 per cent rise in 2021/22 shows that IHT receipts are already growing stealthily, driven in large part by frozen nil-rate band thresholds and rising asset prices.”
She adds that more recent IHT data shows the surge in payments of the tax is gathering pace. HMRC earlier this year revealed that the IHT take for 2023/24 had risen 5.6 per cent on the previous year to a record £7.5billion. That is a significant increase of 226 per cent on the £2.3billion taken in 2009/10.
Haywards also pointed out that other IHT reliefs may come under the spotlight. “As usual, by far the most used relief was the exemption between spouses and civil partners, which sheltered £15.5bn of assets from tax. But the second most valuable relief was business property relief, though the assets it protected fell 11 per cent on the year to £2.9billion.”
She adds: “The aim of BPR was to ensure that family-owned businesses could continue to trade after a death. If these reliefs were abolished or significantly restricted, the application of a top rate of 40 per cent inheritance tax would in many cases mean the business had to be sold on the death of the current owner to pay the tax bill. This would have significant implications for the employees and the stability of the business.”
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