The latest figures on inheritance tax (IHT) receipts show a 14% increase in revenue
Inheritance tax take was up £729m to a record £6.1bn in the largest rise since 2015 when the figure shot up by 22%. An additional 900 estates had to pay the tax in 2021-22, with a record 23,000 paying IHT. However, this tax still only affects 3.7% of UK estates.
The combined value of agricultural property relief (APR) and business property relief (BPR) set against assets was £2.8bn in the tax year 2019-20. This was a fall of £700m (20%) compared to the tax year 2018-19. Most of this decline was concentrated in the value of BPR claimed, which fell by £670m. The value of APR was down by only £27m.
The value of donations to charities in estates also dropped as the value of exempted transfers to qualifying charities fell to £1.6bn in 2019-20, compared with £1.7bn the previous year.
The rise in IHT payments in the 2021-22 financial year is due to a combination of the knock-on effects of the Covid-19 pandemic on the volume of wealth transfers and IHT-liable deaths in recent years, continued rises in asset values, and the government’s decision in March 2021 to freeze the IHT nil rate band thresholds at £325,000 until 2026. This figure has not been adjusted for inflation or risen since 2008.
Estates valued at £1m or more accounted for 82% (£4.1bn) of the total tax liability with 10,600 falling into this bracket, although 1,200 of these estates paid no tax due to the use of various IHT planning measures. The average IHT paid was £209,000, up from £179,000 in 2017-18. The average tax bill in London was a little over £300,000. Over the last three years, the number of trusts has also continued to all with less than 300 paying IHT, reflecting changes in trust rules which closed a number of tax loopholes.
This bumper update to annual IHT tax receipts follows a succession of year-on-year increases of IHT receipts over the last 12 months.
Many families are continuing to face higher IHT bills given that the nil rate band and residence nil rate band has been frozen until at least April 2026. Rising property prices are pushing more families into scope for IHT.
With uncertainty surrounding personal taxation for the months and years ahead, the need for families to give adequate thought to tax planning and take professional advice is extremely important. By considering tax planning strategies such as making gifts to family members or investing tax-efficiently there are a number of legitimate ways families may be able to reduce or eliminate their IHT bills.