In the tax year 2021 to 2022, 4.39% of UK deaths resulted in an IHT charge, increasing by 0.66 percentage points since the tax year 2020 to 2021, according to annual Inheritance Tax liabilities statistics from HM Revenue & Customs.
IHT liabilities created in the tax year 2021 to 2022 were £5.99 billion – a rise of £0.23 billion (or 4 per cent) compared to the previous year.
What’s more, the combined value of agricultural and business property relief (APR, BPR) was £4.4 billion in the tax year 2021 to 2022 – an increase of £0.2 billion (or 5 per cent) compared to 2020 to 2021. Laura Hayward, Tax Partner at professional services and wealth management firm Evelyn Partners, comments:
“With Chancellor Rachel Reeves warning she needs to plug holes in the public finances, inheritance tax has been widely touted as a possible target. The 4 per cent rise in 2021/22 shows that IHT receipts are already growing stealthily, driven in large part by frozen nil-rate band thresholds and rising asset prices. A Budget IHT crackdown on top would certainly ruffle some feathers, as many savers believe that as they have paid tax in some way on their wealth already, taxing some of those assets again at 40 per cent as they are handed over at death is hard to justify.
More recent IHT data shows the surge in payments of the tax is gathering pace. HMRC earlier this year revealed that the IHT take for 2023/24 had risen 5.6 per cent on the previous year to a record £7.5billion. That is a significant increase of 226 per cent on the £2.3billion taken in 2009/10.
Looking at the detail of the statistics, the extent of business and agricultural property reliefs might give fuel to the fire of calls to water these down. As usual, by far the most used relief was the exemption between spouses and civil partners, which sheltered £15.5bn of assets from tax. But the second most valuable relief was BPR, even though the assets it protected fell 11 per cent on the year to £2.9billion. Combined with APR, which rose 54 per cent, the total of the assets protected by the two reliefs was up 5 per cent to £4.4billion.”
Sarah Coles, head of personal finance, Hargreaves Lansdown, said:
“Inheritance tax jumped in 2021/22 to a new record high, while 800 more estates were dragged into paying the tax. It owes a great deal to frozen tax thresholds – and this was just in the first year of the freeze. The nil rate bands have been held until 2028, so rising asset values and house prices in the interim will mean thousands more pay tax.
Even if the new government leaves the tax rules unchanged, it’s going to rake in more of this tax, and if it chooses to tinker, taxpayers could end up forking out even more. The scale of the money involved won’t dampen speculation that inheritance tax could be considered a soft target for a hike in the October Budget.”
Hayward said that both reliefs have “featured prominently” in Labour soundings that some IHT reliefs are “too generous and being ‘abused’”. She added:
“Criticism of business relief often focuses on the inclusion of AIM shares, which many consider an anomaly. But that should not deflect attention away from the important role that these reliefs play for many businesses.
The aim of BPR was to ensure that family-owned businesses could continue to trade after a death.[1] If these reliefs were abolished or significantly restricted, the application of a top rate of 40 per cent inheritance tax would in many cases mean the business had to be sold on the death of the current owner to pay the tax bill. This would have significant implications for the employees and the stability of the business.
Very wealthy individuals may have other assets from which to pay inheritance tax, so this would be a particular burden to those whose farm or business is their main asset and livelihood. The current legislation has been regarded as demonstrating sound commercial sense in allowing businesses to continue without the looming risk of a forced sale on death. Farming businesses would often become unviable if a substantial proportion has to be sold.
These reliefs have previously attracted criticism, with the implication being that wealthy individuals may invest in farmland or small businesses purely to shield their wealth from inheritance tax. However, a report commissioned by HMRC in 2017 noted views of taxpayers and advisers that inheritance tax planning was primarily driven by a desire to keep businesses and farms intact on the death of the owner. A reduction in inheritance tax liabilities was found to be a secondary concern.”
One Response
Statistics being what they are, 4.39% of deaths cause an IHT bill doesn’t really seem to tell the full story.
Something over 49% of people are married/ civil registered, so it would seem that the true and relevant figure as far as families are concerned is very nearly 9% (8.959) of families are affected.
That puts a very different complexion on things, especially bearing in mind the planning opportunities available to those with serious wealth.