The perfect storm of frozen Inheritance Tax (IHT) allowances, increased death toll from the pandemic and rising house prices have seen record tax receipts and a third more families fall into the ‘death tax’ trap – writes Christian Leeming

 

Typically around 25,000 families a year have paid IHT after the death of a loved one, but rising house prices and the impact of the pandemic resulted in a record 33,000 estates liable for the charge last financial year; IHT receipts hit a record £6.1billion in 2021/22, and keeps rising.

Becky O’Connor, head of pensions and savings at DIY investment platform interactive investor, told the Daily Express: ‘IHT bills are rising and the trend isn’t going to stop. This levy was introduced as a tax on the very wealthy but it increasingly feels like a raid on the life savings of hard-working families.

‘Even worse, that wealth has already been taxed once – at the point it was earned.’

MP Julian Knight agrees: ’You have already paid tax all your life, so why does your estate pay tax on your death?’ Inheritance tax hauls are soaring, with HMRC raking in £1.5billion in April, May and June alone – a thumping £400million more than last year and a rise of over a third.

He added: ‘It seems to be always unfair and un-Conservative. Many people will feel that this is a smack in the face for the country that so many estates are being raided.

‘We have got to move to a much fairer, honest taxation system that doesn’t involve taxing the estates of the dead.’

MP John Stevenson, of the all-party Parliamentary group on inheritance tax and intergenerational fairness, added: ‘It is unfair the overall burden falls on the middle section of society, rather than the richest.’

Joe Ventre, digital campaign manager at the TaxPayers’ Alliance, said many families were struggling: ‘The low threshold means the levy hits the savings of hard-working households.

‘Ministers should offer grieving families a break by scrapping the death tax.’

Alex Davies, chief executive of the Wealth Club tax specialist, told the Express rising IHT bills are ‘a kick in the teeth. That you work hard, save hard and pay taxes all through your life only to see nearly half of what you have accumulated taken again by the state seems extremely unfair to many.’

IHT’s share of total tax receipts is climbing steadily and given the state of the Government’s finances, Chancellor Rishi Sunak may use it to increase the tax take to further boost revenues.

Rising house prices increase the value of family estates and add to the windfall; IHT is charged at 40%, ravaging family savings and reducing the amount people can pass on, with the knock-on effect that those struggling to get on the property ladder could be denied one source of a deposit.

The Chancellor froze allowances until 2026 in his March Budget which will see the IHT take continue to rise as he tries to recoup emergency Covid spending as part of a wider tax attack.

The tax-free nil-rate band has been frozen at £325,000 since 2009, yet house prices and investment values have rocketed; it will remain at that level until at least 2026, while the main residence nil rate band adds £175,000 to that allowance.

IHT receipts received by HMRC during the financial year 2021 to 2022 were £6.1 billion. This was an increase of 14% (£729 million) on the financial year 2020 to 2021, and is the largest single-year rise in IHT receipts since the 2015 to 2016 financial year, when receipts rose by 22% (£848 million)