Inheritance tax levies at highest in decade

More people are paying inheritance tax than at any time in the past decade, amid calls for the threshold to be raised. More than 28,000 estates were subject to the death duty in 2016-17, figures released yesterday by HM Revenue & Customs show – a 15 per cent increase on the year before – with the rise blamed on higher property prices. Both the total number of deaths resulting in inheritance tax being levied and the level of revenue raised by the duty have increased every year since 2009.

MORE people are paying inheritance tax than at any time in the past decade, new figures reveal, amid calls for the threshold to be raised.

More than 28,000 estates were subject to the death duty in 2016-17, figures released yesterday by HM Revenue & Customs show – a 15 per cent increase on the year before – with the rise blamed on higher property prices.

The figures, published late due to the time lags involved in compiling taxreturn data, come as inheritance tax receipts have reached their highest level in history – £5.4billion in 2018-19.

Both the total number of deaths resulting in inheritance tax being levied and the level of revenue raised by the widely disliked duty – charged at a rate of 40 per cent – have increased every year since 2009. Over the same period, family wealth has also steadily increased, with the overall value of deceased estates recorded in the tax year climbing to more than £80 billion – surging by around £15 billion since 2009. Roughly 80 per cent of this increase was in residential property.

Since 2009, average house prices have increased by almost 50 per cent, dragging more into the tax net, and the £325,000 tax-free allowance has remained unchanged. Had the allowance increased in line with inflation, it would now stand at £423,000. Experts have said the inheritance tax boom is likely to continue, despite new protections that allow families to pass on more of their property wealth without incurring tax.

The new “family home allowance” allows individuals to pass on up to £150,000 of their homes to direct descendants tax free. Introduced in 2017, it aims to halve the number of estates paying inheritance tax by 2020-21, saving taxpayers £725million.

The allowance increases to £175,000 in 2020, meaning spouses and civil partners, who can combine their tax breaks, will be able to pass on up to £1million before tax.

But there are concerns that the new relief is not working and many have called for the main tax-free threshold, unchanged since Gordon Brown was prime minister, to be raised.

Andy Butcher of wealth advisers Raymond James said that despite the new protections, middle-class families, especially in London and the South East, where house prices are highest, are being unfairly punished.

“Many asset-rich but cash-poor families that have put all their money into the mortgage over the years … are having their already taxed income taxed again when they die – it’s fundamentally unfair.”

Families in London and the South East pay 45 per cent of the nation’s inheritance tax. The average death duty bill hit £180,000 in 2016-17.