HMRC released its annual report on average inheritance tax (IHT) bills, revealing that total IHT liabilities rose by 16% to £5.76bn in tax year 2020/21.
17% more people were paying IHT compared with the previous tax year, and the average inheritance tax bill fell by 1%, down £2,000 to £214,000.
3.7% of estates paid IHT, broadly in line with last year, although the number of estates making tax-free transfers to their spouses rose 21% – storing up potential liabilities for the future.
Reaction:
Joshua Gerstler, chartered financial planner, The Orchard Practice:
“The Government collected almost £6bn in inheritance tax in the year.
“That is £6bn of wealth that should have gone to the children and beneficiaries of hard-working families.
“That is also £6bn that has already been subject to other taxes during people’s lives, such as Income Tax, Capital Gains Tax and Value Added Tax, to name just a few. The sooner this tax is removed, the better.”
Ross Lacey, director at Fairview Financial Management:
“With the thresholds for IHT frozen until 2026, without proper planning, we can see the number of people having to pay inheritance tax increasing.”
Nicholas Hyett, investment manager at Wealth Club:
“HMRC has today published the breakdown of its 2020/21 inheritance tax take.
“They show a 17% increase in the number of estates paying inheritance tax, and an increase in liabilities for lower value estates falling into the taxman’s net has resulted in the average tax bill falling by £2,000 to £214,000. That’s still enough to buy the average house outright in Wales, Scotland or Northern Ireland.
“A lot of the increase is probably down to the spike in house prices we saw during the pandemic, paired with the freeze in inheritance tax bands all the way back in 2009. This ‘fiscal drag’ is a sneaky attempt by the Government to grab more cash without taxpayers noticing.
“The result is that families whose houses and assets wouldn’t have qualified for IHT just a couple of years ago, are now finding themselves dragged into this most hated of taxes despite no change in their underlying wealth.
“They live in the same house and enjoy the same standard of living – but now they fall victim to a tax that was originally targeted only at the very wealthy.
“Unfortunately, that’s a trend that’s set to continue. So long as inheritance tax thresholds remain frozen, the number of families paying inheritance tax is only likely to grow.”
