Recent data produced by HM Revenue & Customs (HMRC) showed that inheritance tax paid by taxpayers from April 2021 to August 2021 was £2.7 billion, an increase of £0.7 billion compared to the same period last year. Figures have shown that the amount of inheritance tax collected by HMRC over the last 12 months has reached the £6 billion mark for the first time.
Inheritance tax arises on the estate of someone who has died as well as certain transfers of wealth they may make during their lifetime.
It is believed that a number of factors have contributed to this increase, including the impact of the Covid-19 pandemic and record property prices, alongside the frozen rate of the tax free allowance. The effect has been that a larger number of estates have been liable to inheritance tax.
The inheritance tax nil rate band for an individual is currently £325,000, and has been held at this level since April 2009. No inheritance tax is paid up to this nil rate threshold, but above that tax is charged at 40% on an estate on death. If the nil rate band had increased each year in line with price rises, then the threshold would be approximately £439,000 now.
In addition to the nil rate band there is an additional allowance, the ‘residence nil rate band’, which broadly is available where an individual passes on their home to direct descendants. This currently stands at £175,000 per person.
With the announcement earlier this year by the Chancellor, Rishi Sunak, that both the nil rate band and residence nil rate would remain frozen until April 2026, it is likely that even more estates will be caught by inheritance tax in the future.
It is also believed that the Covid-19 pandemic has contributed to increased wealth transfers during the last 12 months and therefore the record levels of inheritance tax falling due.
With the governments next budget due on 27 October 2021 there is again speculation that there may be an increase in inheritance rates or changes to reliefs as the government looks at ways of recouping some of the costs of the pandemic. Therefore it may now be a good time to consider looking at ways of potentially managing any future inheritance tax liability.
If you would like further information regarding inheritance tax or any assistance in planning your future inheritance tax position please speak to your usual contact at the firm or contact our Tax Consultant Tracey Macintosh.
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