Experts are sounding the alarm that more and more Britons are being «scratched» to pay Inheritance Tax (IHT) because of the current tax rules.
Figures published by HM Revenue and Customs (HMRC) state that IHT revenue for April 2024 to May 2024 reached £1.4 billion.
This is 200 million pounds higher than the same period last year and represents an annual increase of 16.6 percent.
Inheritance tax is paid on the estates of those who have passed away, which includes their money, property and assets.
It is charged at a rate of 40 per cent on properties costing more than the £325,000 threshold.
While there are ways to reduce one’s inheritance tax liability, more taxpayers are finding themselves paying the tax due to fiscal procrastination.
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HMRC is raking in millions from inheritance tax
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This term is used to describe when tax margins rise as incomes rise. As a result, families find themselves «crammed» into higher brackets and paying additional taxes.
Earlier this year, Chancellor Jeremy Hunt confirmed that tax allowances would remain frozen until at least 2028 in what many have described as a «stealth tax».
Despite the unpopularity of this decision, the Labor Party has not promised to change this policy.
Laura Hayward, a tax partner at Evelyn Partners, warned that many Britons are at risk of not being aware of their liability to pay inheritance tax.
She explained: «Even if a new government is shy about making transparent and potentially unpopular decisions to tax the transfer of wealth more heavily, then fiscal drag is doing a similar job behind the scenes anyway.
«With property and financial market assets continuing to rise in value, there is no prospect of the trend abating for more wealth, and more assets in each forced estate, creeping over the frozen thresholds at which IHT kicks in .»
Forecasts from the Office for Budget Responsibility (OBR) suggest that the proportion of deaths resulting in paying inheritance tax will rise to 6.3 per cent by the tax year 2028–29.
According to Evelyn Partners, it would be the highest level of IHT taxation since the 1970s.
Revenue collected from IHT and its predecessor taxes has increased over time in real terms, from around £2 billion in 1980/81, to £7.5 billion in 2023/24.
This figure is expected to reach almost £9bn by 2028/29 according to the OBR’s current forecasts.
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Inheritance tax applies to inherited assets worth more than £325,000, or total assets over £650,000.without
According to tax expert Evelyn Partner, HMRC is likely to collect billions more in the coming years until the effects of fiscal drag subside.
Hayward added: “The drag on the Exchequer from IHT is likely to escalate in the coming years due to a particular demographic crash.
«As the baby boomers die off in the next two decades, there will be a massive transfer of wealth. Research shows that older generations have up to £2.6 trillion of equity tied up in their homes.»
Some Tories have ruled out scrapping inheritance tax all together in a bid to narrow the gap between the party and Labor in the general election polls.
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