Increasing numbers of estates paying IHT

In recent years, there has been a noticeable surge in Inheritance Tax (IHT) liabilities.  HMRC has just published a report on IHT liabilities up to 2021-2022 tax year, see graph below.

The graph shows liabilities consistently around the £5bn mark for the 4 years 2016/17 to 2019/20, then, a large leap towards £6bn for 2020/21 and 2021/2222. In 2022/23 it rose to over £7bn (not shown on graph). All in all, the annual IHT liability is twice what it was 10 years ago.

Graph from https://www.gov.uk/government/statistics/inheritance-tax-liabilities-statistics/inheritance-tax-liabilities-statistics-commentary

What factors are contributing to this whopping rise?

• Volume! A growing ageing and wealthier population has led to the rise in IHT liabilities.
• Rising asset values have also played a significant role in driving up IHT liabilities. Whether it be property prices, investment portfolios, or other valuable assets, the surge in their worth has pushed many individuals over the IHT threshold. As these assets appreciate in value, so do the potential tax liabilities attached to them, further exacerbating the burden on taxpayers.
• The government’s decision to maintain the IHT tax-free thresholds at their 2020-2021 levels until April 2030. With thresholds held stagnant, more estates are now falling within the taxable bracket, causing a broader swathe of the population to face IHT liabilities. This lack of adjustment for inflation or changing economic conditions has intensified the impact of IHT on taxpayers.

Statistics from the most recent tax years underline the scale of the rising IHT burden. The data demonstrates a clear trend of increased tax obligations on inheritances, highlighting the importance of careful estate planning and wealth transfer opportunities.

What these statistics do not show is that the average Inheritance Tax bill is estimated to rise to £239,000 this year and around 30,000 families are predicted to be affected this year alone. In 2023, there were 581,363 deaths registered in England and Wales, so around 5% of estates, or 1 in 20 are likely to be affected and paying IHT next year.

As more estates fall into the inheritance tax trap, it becomes imperative to seek expert advice and explore strategic financial planning options to mitigate the impact of IHT on those estates and heirs.

Get in touch with our tax team to check whether your estate could be liable to IHT, and for ways to benefit those you want it to. Unless of course, you’d prefer to leave it to the taxman!30