His Majesty’s Revenue and Customs (HMRC) recently published its most up-to-date statistics relating to Inheritance Tax (IHT). They revealed that in the tax year 2021 to 2022, 4.39% of UK deaths resulted in an Inheritance Tax (IHT) charge, an increase of 0.66 percentage points from the tax year 2020 to 2021. This means that IHT is payable on fewer than one in 20 estates.
What these figures tell us is that Inheritance Tax, while greatly exercising the minds of politicians and the media, is something of a sideshow compared to other taxes that yield considerably more in receipts to help fund our public services. To those facing an Inheritance Tax burden, however, it is far from a sideshow and much more the main event. And the number impacted by IHT is on the rise.
The same HMRC report (published 31 July 2024) shows that the total number of UK deaths that resulted in an IHT charge has increased. In the tax year 2021 to 2022, there were 27,800 taxpaying IHT estates, an increase of 800 (3%) from the previous tax year 2020 to 2021.
Rising House Prices
One of the reasons for the increase is undoubtedly linked to a rise in house prices. A house is still by far and away the biggest single component by value within an estate. A property that might have been bought in the late 1960s for £2,000 (approximately £60,000 in today’s money) could now be worth 500 times that amount (£1 million or more), depending on its size and location. And given that the average house today will set you back almost £261,000 (SunLife statistics), it’s clear that the number of UK deaths resulting in an IHT charge is only heading one way.
Digging deeper into the report, there is a table that gives the numbers and tax due by range of estate. It makes for interesting and, some might say, alarming reading. Of the 195,000 estates that were notified and the 27,800 who were liable to pay tax, the average tax bill was a whopping £215,000. These range from a £13,500 liability for a net estate value of £300,000 up to a £3.91 million liability for an estate of £10 million.
What is particularly alarming, however, is how the value of the liability leaps significantly for estates around the £1 million mark. The total tax liability for an estate worth £1 million stands at £155,000; but this figure more than doubles for an estate valued at £1.5 million (to £325,000).
One might be tempted into thinking that £1 million to £1.5 million is a significant sum of money and therefore probably only affects a small number of the 27,800 caught in the IHT snare. But you would be wrong. Almost exactly a third (9,230) of those impacted by IHT fall into the £1 million to £1.5 million bracket, presenting a very real headache for those who need to settle what’s owed.
Death, it appears, is a costly business, especially for those left behind. Ordinary families set to inherit their grandfather’s or great-aunt’s house, which they lived in all their lives and is now worth a million or more pounds, are going to struggle to find the money to meet their IHT bill. And until the IHT has been paid to HMRC, the grant of representation will not usually be issued, which can lead to a frustrating delay in the estate’s administration and adding to the cost.
These new statistics make a simple point: more hard-working families (if you can forgive a much-overused term) will inevitably find themselves liable for a tax they will struggle to pay unless more innovative and affordable means of funding those payments are found beyond those currently being offered by the banks.
By Luke Cheadle – Head of Operations
This article was submitted to be published by The Estate Registry as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate.
