Average inheritance tax bill heading for £266,000 this year

THE average inheritance tax bill will surge this year to £266,000 as soaring inflation pushes more homeowners over the threshold, analysis shows.

A freeze on tax-free thresholds combined with massive post-pandemic house price growth means that more and more estates are liable for inheritance tax.

The average bill for a family hit by inheritance tax is now expected to be £266,444 this financial year, according to analysis by investment service Wealth Club.

This will be a jump of 27pc compared with the 2019-20 tax year, prior to the pandemic. It means in the decade since the 2012-13 tax year, the average inheritance tax bill will have risen by 57pc.

Families paid £500m in inheritance tax last month, an extra £10m compared to April 2021, new data from HMRC shows.

Alex Davies, founder of Wealth Club, said: “Inheritance tax really is the gift that keeps on giving, to the Treasury at least.”

Each person in Britain has a tax-free inheritance allowance of £325,000. The value of an estate above this nil-rate band can be subject to a tax rate of up to 40pc.

The nil-rate band has been frozen at £325,000 since 2011, despite the average house price increasing by 66pc. Relatives inheriting the family home from a parent are also protected by a residence nil-rate band of up to £175,000 on top of the £325,000. This was introduced in 2017 and has increased annually with inflation until last year, when Rishi Sunak, the Chancellor, froze the level until 2026. Since then, inflation has hit a 40-year high.

The Office for Budget Responsibility, the fiscal watchdog, forecast that the inheritance tax take this year will hit £6.7bn, meaning an average tax bill per household of more than a quarter of a million pounds. Wealth Club warned that not only are bills increasing, but a larger number of people have to pay them, as the frozen thresholds make paying inheritance tax increasingly mainstream.

In the tax year ending April 2022, 25,146 people paid inheritance tax, a jump of 9pc compared to a year earlier.

In the last 10 years, the number of households paying inheritance tax has surged by 40pc.