£2.4bn inheritance tax rip-off – experts call for IHT reform | Personal Finance | Finance

The calls came as official figures revealed the Treasury collected another £2.4 billion in inheritance tax (IHT) receipts in the three months to July. This is £300m more than the same period last year.

IHT is charged at 40 percent of the value of an estate – including cash, jewelry, savings, investments, property, cars, and art – up to a nil rate of £325,000.

But the cap has remained at the same level since April 2011 and, meanwhile, rising property prices mean more people are becoming higher taxpayers when they die.

Married couples can qualify for a “Family Housing Allowance” of £175,000 each. This adds up to £325,000 and, when combined, allows estates worth £1 million to pass to their direct descendants.

Introduced in 2017, this “residential nil-rate band” has been frozen until 2026. However, the average price of properties rose to £140,129 between April 2009 and June 2022, pushing more sellers over the limit.

Tax experts have warned that mansions are no longer millionaires affected by inheritance tax. They say that many simply owe money because of their property wealth.

Myron Jobson, the senior personal finance analyst at money services company Interactive Investor, said: “The bumper tax burden shows that inflation – both in wages and house prices – is feeding into HMRC’s coffers. This may leave a sour taste at a time when people cannot afford energy bills.

The Wealth Club investment service recommends that the next Prime Minister drop the 40 percent rate, increase the £325,000 limit or exempt more assets such as ISAs.


Its CEO and founder, Alex Davies, said: “The new prime minister should consider the wise words of Louis XIV’s finance minister – “The art of taxation consists in plucking the goose, which gets as few feathers as possible. hissing volume”.

“As things stand, the Treasury plucks a few geese, and those bald birds crow loudly.”

Shawn Moore, a tax and financial planning expert at asset management firm Quilter, said a potential slowdown in property prices and supply and demand could keep receipts high.

He said: “IHT is no longer the preserve of the rich. Many estates have to pay taxes because of their property wealth. IHT is proving to be very profitable for the Exchequer.

Meanwhile, the Wealth Club estimates the average bill could rise to £266,000 in the current tax year – a 27 percent rise from the average £209,000 paid three years ago.

Mr. Davies said: “Inheritance tax reform is a potential vote win for Rishi Sunak and Liz Truss among Conservative Party members, but it’s hard to imagine it being at the top of their agenda in any emergency budget once they come to power.

“Cutting inheritance tax will do nothing to alleviate the cost of the living crisis engulfing the country and is a real cash cow for the exchequer. IHT generates around £800 million in tax revenue every month – a very meaningful sum at a time when 29 million households are given £400 each to cover their energy bills.

“The increase in monthly IHT take-up has been driven by house prices and payments that have been frozen for years. With widespread inflation, the effect of freezing benefits will increase in the coming years unless the new Prime Minister intervenes.

Mr. Davies said that although four percent of estates currently pay inheritance tax, without a review of the rules, “more and more families will be hit with death obligations they didn’t expect”.

Andrew Tully, technical director of assurance company Canada Life, said the frozen limits meant HMRC had doubled its IHT tax over the past 10 years. He added: “The upswing will be driven in part by house prices continuing to rise as residential properties make up the largest share of most estates.

“Both the nil-rate band and the residence nil-rate band are frozen at least until April 2026, so we can expect IHT receipts to continue to rise. It’s a tax that doesn’t just affect the wealthy in society and is increasingly catching unprepared or simply uninformed households.


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