Government collects record £5bn in inheritance tax

A record sum of nearly £5 billion was collected in inheritance tax last year, according to recent figures.

The boost to the Government, which represents a 4% rise from the previous period, is thought to reflect growing property values and frozen threshold rates.

With HMRC reporting that it has collected £4.84 billion in the last tax year – up on the £4.67 billion generated in 2015-16 – the latest figures show that an even more significant increase is expected. Indeed, records for the first quarter of 2017-18 indicate a sizable 22% year-on-year increase.

According to the experts, a record number of middle-class families are now having to pay more tax as a result of increasing house prices; particularly in the south. Stamp duty is also thought to be discouraging elderly people from downsizing.

Since 2009, inheritance tax has been set at 40% on all assets over the £325,000 threshold. This is despite that fact that house prices have rocketed over the past ten years, meaning more and more estates are hit by the tax. Before 2009, the threshold was set each year to reflect inflation and rises in overall asset prices.

Highlighting this issue, forecasts from the Office for Budget Responsibility (OBR) show that the number of family estates on which inheritance tax is paid has more than quadrupled over the last seven years, with the number up from approximately 10,000 in 2010 to over 40,000 today.

In April 2017, changes were introduced to allow couples to pass on properties worth up to £1 million tax-free. A new ‘family home allowance’ also allows a further £100,000 to be made tax-free, set against the value of a property left to a direct descendant. The new allowance will increase by £25,000 a year until it reaches £175,000 in the tax year 2020/21.

Despite the changes, many people with recently deceased relatives have narrowly missed out, and the overall tax bill is expected to keep on rising. With predictions from the OBR that the inheritance tax bill will hit £6.2 billion in 2021-22, estate planners are having to look at valid ways to ensure assets are left to family members rather than the taxman.

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