Receipts for Inheritance Tax were up by £10 million in April compared to the same period last year, in keeping with a trend that is likely to continue.
Inheritance Tax receipts for April reached £0.5 billion, according to figures from HMRC.
The increase has been explained by a combination of high volumes of wealth transfers during the Covid-19 pandemic and rises in asset values.
The rise has also been exacerbated by the Government’s decision to keep Inheritance Tax tax-free thresholds up to 2026 at their 2021/22 levels.
So, who is liable to pay Inheritance Tax, and could more families be drawn into paying it?
What are the current Inheritance Tax rules?
An estate is taxed at 40 per cent on anything over the £325,000 nil rate threshold.
In addition to a deceased’s own nil rate band, if they have survived their spouse or civil partner, the estate may take advantage of the unused percentage of the previously deceased spouse’s or civil partner’s nil rate band.
This combined allowance can total up to £650,000 across both estates.
Where the deceased leaves their home to their children, stepchildren, or direct descendants, their estate can also benefit from an additional residence nil rate band (RNRB) of £175,000.
This allowance can also be transferred to a surviving spouse or civil partner, meaning that a couple can pass on up to £1 million tax-free.
Could more people end up paying Inheritance Tax?
As house prices continue to rise closer to the IHT threshold rate, more families could end up being liable to pay.
Inheritance Tax has traditionally been seen as a tax on the wealthy, but an increasing number of middle-income families could be pulled into the tax.
With the Inheritance Tax threshold being frozen until 2026, the threshold is not rising in line with inflation, which hit a four-decade high of nine per cent in April. House prices are also continuing to rise at an eye-watering rate.
Many people may not even be aware that they fall into the Inheritance Tax bracket, which is why it is vital that families keep on top of the current tax rules to avoid any stressful surprises in the future.
Are you worried about Inheritance Tax and do you need support with the process? Contact our expert team for advice today.
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