‘Kick in the teeth’ for grieving families as inheritance tax bills rise by £7,000

Recent data from HM Revenue and Customs (HMRC) has found that IHT receipts for last tax year came to £6.1billion. This is a sharp 14 percent increase from the previous year and an increase of £729million. For the 2019-20 tax year, the average inheritance tax increased by £7,000 from £209,000 to £216,000.

Investment service Wealth Club has forecast the average bill per estate could increase £266,000 for the 2022-23 tax years.

Experts are warning that more households are being “dragged” into paying the tax as four percent more people were paying inheritance tax compared to previous tax year.

IHT is the levy on someone’s estate after they have passed away, which includes their money, possessions and property.

It is not paid on a person’s estate if it is valued below the £325,000 threshold or if they give everything above this amount to their spouse or civil partner or charities.

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However, as the inheritance tax threshold remains frozen and the value of peoples’ properties has only gone up, more families are being told to pay the tax.

Worryingly, this looks set to continue in the near future.

Alex Davies, the chief executive of Wealth Club said the £6.1billion generated revenue generated from inheritance tax last year was a “a sharp increase” of 14 percent on the previous year.

Mr Davies said: “Revenue generated from inheritance tax last year amounted to £6.1billion, this is a sharp increase of 14 percent on the previous year.

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“We’ll have to wait a few years for the detail on how that number breaks down between increases in the number of taxable estates and larger tax bills, but it’s hard to imagine the average tax bill has shrunk.”

The tax expert broke down how this latest hike is pushing more people into paying inheritance tax.

He added: “The most recent numbers available, and published today, cover the 2019-20 tax year.

“They show a modest increase in the number of estates paying inheritance tax as well as a meaningful increase in the average inheritance tax bill, rising £7,000 to an average bill of £216,000.

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“This is enough to buy the average house in Wales, or more than enough for the average home in Scotland or Northern Ireland.

However, Mr Davies also warned that the latest figures will be a “kick in the teeth” for the households who will be left to deal with the final IHT bill.

“Clearly more people are being dragged across the threshold for inheritance tax and the bills are getting bigger, which is a kick in the teeth for many families picking up the tab,” Mr Davies explained.

“The idea that you work hard, save hard and pay taxes all through your life only to see nearly half of what you have accumulated taken by the state can be unpalatable.”

Mr Davies also shared examples of what people can do to reduce their liability for inheritance tax legally.

These include gifting money away, leaving a will for loved ones and investing in companies that qualify for Business Property Relief.

Up to £3,000 in gifts can be given every tax year and this can be carried onto the following tax year, giving families a total of £6,000 in potential savings.

Furthermore, an unlimited amount of inheritance tax gifts can be made of up to £250 per person.

On top of this, lifetime gifts can be possibly exempt from an estate for IHT purposes, if the person lives seven years or longer after making it.