MORE Brits are paying inheritance tax, according to new HMRC data published today, with one expert warning this is “the tip of the iceberg” and that many more people are “set to be caught in Rachel Reeves’ widening IHT net”.
The data shows that, in the tax year 2022 to 2023, there were 31,500 taxpaying IHT estates, an increase of 3,700 (13%) since the previous tax year, 2021 to 2022.
In the tax year 2022 to 2023, 4.62% of UK deaths resulted in an Inheritance Tax (IHT) charge, increasing by 0.23 percentage points since the tax year 2021 to 2022.
IHT tax liabilities created in respect of the tax year 2022 to 2023 were £6.70 billion. This was a rise of £0.71bn (12%) compared to the previous year.
The rise in IHT tax liabilities compared to previous years, HMRC says, is likely due to a combination of higher volumes of wealth transfers following recent IHT-liable deaths, recent rises in asset values, and the Government’s decisions to maintain the IHT tax free thresholds at their 2020 to 2021 levels up to and including 2029 to 2030.
Scott Gallacher, Director at Rowley Turton, warned that many more people will be facing a significant IHT issue in the years ahead: “This is the tip of the iceberg, or perhaps the calm before the storm. Without proactive planning, many more families are set to be caught in Rachel Reeves’ widening IHT net.
“It’s no longer just about house prices, as we now face the prospect of IHT hitting pensions, businesses and farms. With the nil-rate bands still frozen at up to £1m for a married couple, even relatively modest estates are at risk.
“At our firm, we estimate we’re moving from around 10% of our clients facing a significant IHT issue to the majority of them in the near future. It’s vital people review their estate planning now, before these changes fully take effect.”
Molly Pile, Chartered Financial Planner at Fernbank Wealth, said “under new government rules, from 6 April 2027, any unused pension funds will be included within the estate for IHT purposes. Previously, it has not been uncommon to see people leave their pensions untouched altogether as a future inheritance for their kids, especially as if they died pre-75 the whole pot could be taken tax free. With the new changes, we are likely to see an increase in the total number of deaths resulting in an IHT charge. There are many people out there who have been accumulating large pensions for their IHT benefits who now need an entirely new strategy”.
She added: “One easy and enjoyable way to reduce your IHT liability is simply to spend more money now. Those who enjoy gifting and want to help their families might also want to consider the Normal Expenditure out of Income exemption, where regular gifts from surplus income are immediately outside of the taxable estate. This is a tax-efficient way to give and help those you love.”
Riz Malik, Director at R3 Wealth, also urged people to be proactive: “Unless you know the exact date when you are going to die, please don’t leave it too long to start making plans for your estate, especially with the proposed pension changes coming in 2027. If you are worried about your liability and do not know where to start, seek professional advice, including those who have built up property portfolios during the golden age of buy-to-let. Protect what you have worked hard to build. Sometimes, as the proverb goes, it is better to give with a warm hand than a cold one.”
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said that, approached correctly, IHT can be a voluntary tax: “Whilst the proportion of estates subject to IHT continues to rise, it is important to recognise that IHT is, to a large extent, a voluntary tax.
“With a sound understanding of the various reliefs and exemptions available, individuals can significantly reduce—if not eliminate—their IHT liability. Effective planning provides control, security, and the peace of mind that the estate will be passed on in a tax-efficient and organised manner.
“A key consideration in estate planning is balancing the merits of making gifts during an individual’s lifetime against those made on death. Lifetime gifting can be highly effective in reducing the value of an estate, but affordability must also be considered, along with the potential loss of income from gifted assets and the individual’s own comfort regarding the relinquishment of capital. Ultimately, IHT is often the result of inaction rather than inevitability. Early and comprehensive planning is therefore essential.”
Samuel Mather-Holgate, Independent Financial Adviser at Mather and Murray Financial, added: “This is a giant problem masked in these figures by sluggish growth in the economy and asset values. Bringing pensions into the regime will bump these figures up significantly. The freeze of thresholds as and when assets to appreciate will further swing the balance of unfairness as death is taxed even further.”
