UK families could pay £37bn in inheritance tax over the next five years, according to the Office for Budget Responsibility’s economic and fiscal outlook.
The forecast published this month (March 2022) found that between 2017 and 2021, families have paid £27.2bn in IHT.
This is estimated to climb 36 per cent to £37bn for the period from 2022 to 2027.
NFU Mutual said the predicted the amount to be collected over the next five years has increased by £2.5bn as a result of rising house prices and inflation.
Last week it was reported that inflation hit another record as the consumer prices index rose 6.2 per cent in the 12 months to February this year, an increase from the 5.5 per cent jump in January, according to the Office for National Statistics.
Source: OBR
Five years ago, IHT raised an annual amount of £4.8bn for the government and it is estimated the figure will be £8.3bn in five years' time.
Sean McCann, chartered financial planner at NFU Mutual, said: “Rocketing house prices and inflationary increases on the value of other assets means the amount of inheritance tax paid by UK families over the next five years is expected to be almost £10bn higher than the previous five.
“The chancellor’s decision to freeze the tax-free allowances for inheritance tax until 2026 means more families will be caught in the inheritance tax net in the coming years.”
McCann said one way to reduce the IHT bill is to invest in to a pension as he argued money left in a pension when you die is normally free of inheritance tax.
“Those with ISAs and other savings and investments which are subject to inheritance tax should consider spending those first before taking money from their pension,” he said.
He explained that ensuring life insurance policies are in trust is also important and redirecting an inheritance using a deed of variation
McCann said latest figures suggest nearly 7,000 estates on which inheritance tax was paid included the value of life insurance policies worth £2.3bn
“If your life insurance policies are not written in trust, your family may lose up to 40 per cent of the pay-out to inheritance tax.”
“Putting a life insurance policy in trust can be straightforward. Many insurance companies have trust forms available free of charge.”
sonia.rach@ft.com
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