Inheritance Tax  

Homeowners ‘could be in for a shock’ with rising IHT

Homeowners ‘could be in for a shock’ with rising IHT

Inheritance tax receipts continued to rise between April and May this year, with the government taking £1.1bn - £100mn more than the same time last year.

IHT receipts have reached record highs this year. In its latest tax receipt data published today (June 23), HM Revenue and Customs put the record highs down to a combination of bigger wealth transfers during the Covid-19 pandemic, recent rises in asset values - such as property, and the government’s decision last year to freeze tax free thresholds until 2026.

While only a small proportion of people pay inheritance tax, the amount being paid has more than doubled in a decade from under £3bn to more than £6bn in 2021/22.

The rising tax, some experts have said, could pose a very real risk for homeowners whose property values have grown over the past year.

HMRC data on IHT receipts since 2019

“IHT has been a lucrative area for the Treasury, and with house prices still on the rise, this will surely continue,” said Quilter tax and financial planning expert, Rachael Griffin.

“IHT receipts have been increasing steadily each month for a long while now, showing the government is gradually increasing tax revenues without significantly increasing the burden on taxpayers.

“However, given IHT was once viewed as a tax on wealthier individuals, many could be in for a shock.”

Griffin said the reality is property prices have continued to rise, creeping ever closer to the standard nil rate band - also known as the inheritance tax threshold. 

“With the nil rate band and residence nil rate band frozen until 2026 and house prices still on the up, many more people could face a hefty IHT bill,” she said.

Group communications director at retirement specialist Just Group, Stephen Lowe, said if the nil rate band had not been frozen at £325,000 since 2009, and had instead risen with the general rise in prices, it would be more than £100,000 higher today.

“The monthly receipts data also shows that the phased introduction of the residential nil rate band between 2017/18 and 2020/21, an additional tax-free threshold for those leaving homes to children, has not stopped the continued rise in the amount of IHT being raised,” said Lowe.

“Typically, the value of a residential property is the main reason why estates are pushed over the IHT thresholds and the recent house price boom across the UK means many people could be approaching or surpassing the threshold without realising.”

Lowe said options such as lifetime mortgages will be used more as a result to help people pass on that wealth while they are still alive.