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UK inheritance tax take reaches fresh high of £6.7 billion
The UK Government collected a new record £6.7 billion in inheritance tax during the 2022-23 tax year, driven by rising property and asset prices and unmoving tax-free threshold.
According to HM Revenue and Customs (HMRC), 31,500 estates were liable for inheritance tax in 2022-23. This was an increase of 13% compared to the previous year. The total tax collected also rose by 12%, up from £6 billion in 2021-22.
This increase took place before significant changes to inheritance tax rules, announced by Chancellor Rachel Reeves in October 2023, took effect.
The Government has since introduced reforms that limit previous tax reliefs on business assets, agricultural land, unspent pension funds and shares listed on the Alternative Investment Market (AIM) for smaller companies.
Why inheritance tax is catching more families
More families are being tipped into paying IHT because of the ‘fiscal drag’ effect of the unchanging allowances around the tax.
Inheritance tax is applied at a rate of 40% on estates valued above a tax-free threshold of £325,000 per person. An additional allowance of £175,000 is available when a main residence is passed to direct descendants.
The primary tax-free threshold has been unchanged since 2009. This means a real-terms reduction due to inflation. The residence allowance, introduced in 2017, has been fixed since 2020-21.
More families end up paying IHT every year because the assets they own, which includes homes and other aspects of wealth, rise in value passively over time and then unexpectedly top
Projections from the Office for Budget Responsibility (OBR) show that by 2029-30, 9.5% of estates will be subject to inheritance tax, generating over £14 billion annually.
There are no plans currently to make any changes to the thresholds.
Worried about Britain’s ‘most hated’ tax
IHT is often referred to as Britain’s ‘most hated tax’. This is because many see it as a form of double taxation.
People are taxed on income, spending and saving throughout their lives and in thanks for that the Government takes away a portion of what they were responsible enough not to give away in their lifetimes.
This is only going to get trickier because of new rules coming in for pensions from 2027.
If you are worried about your money being impacted by inheritance tax then it is essential to consider seeking professional financial advice. Inheritance tax is extremely complicated and not to be trifled with.
If you are younger still then time is on your side. But you may also be worried that your parents aren’t thinking about the implications for their money. This is natural. I would suggest you try to speak to them and have an open and honest discussion about how they are preparing for such eventualities.
Photo courtesy of HM Treasury Flickr
