Inheritance Tax liabilities highest on record reaching £5.65bn

New figures released today by HMRC show that IHT liabilities reached their highest level on record, up by 16%, although the proportion of deaths that resulted in an IHT charge marginally decreased.

The tax authority reported that the rise in liabilities during the 2020 to 2021 tax year was due to a combination of higher numbers of deaths during the COVID-19 pandemic and the continued rise in asset values, including residential property.

Commenting on the figures, Helen Jones, a tax partner at BDO said:

“While the headline rate for IHT is 40%, it’s interesting that the average effective tax rate for 2020-21 was 13%, lower than in the previous year.

“As HMRC notes, this is due to the combination of tax-free allowances, exemptions and reliefs used by taxpaying estates to minimise the chargeable portion of their estate. Indeed, there was a 68% year-on-year increase in the value of Business Property Relief which suggests an increase in the numbers of people investing in qualifying business assets. I would argue that this is good news for the economy but there is perhaps a danger that a Chancellor may seek to present it as a case for reforming this valuable relief. 

“With recent headlines suggesting the Government may be considering the abolition of IHT, the big question is how the Government would seek to replace the £5.6bn in lost receipts. We could see a re-emergence of a debate on a wealth tax, but with 81% of total IHT receipts already coming from estates worth more than £1m, arguably we already have one and it operates with a low administrative cost to HMRC.”

ENDS

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