Pandemic property ‘boom’ boosts governments IHT revenues by £793m in a year

New research has revealed how the Government pocketed an additional £793m in a single year from inheritance tax liabilities, largely due to the pandemic inspired boom in property values spurred by the stamp duty holiday.

Final Duties analysed the latest Gov data on inheritance tax liability, looking at which region was home to the highest inheritance tax bill in a single year and how this tax grab has increased on an annual basis.

Inheritance tax is a 40% tax on the estate of those who have passed away, however, it is only applied to the amount above the threshold of £500,000 if passed to the children or grandchildren of the deceased, while no tax is owed if the estate is passed to a spouse, civil partner, charity or community amateur sports club. If the estate is passed to someone that doesn’t fall within any of these categories, tax is charged on anything above the threshold of £325,000.

The latest figures show that in a single year (2020-21), the UK Government pocketed a huge £5.57bn in inheritance tax on 26,948 liable estates, equating to an average of £213,485 in tax per estate.

London saw the highest amount paid at £1.34bn, with the 4,800 liable estates taxed accounting for 18% of the national total. However, it was the South East that ranks as the inheritance tax hotspot of the UK, with 5,650 liable estates taxed in 2020-21 – accounting for 21% of the national total.

While the value of a person’s estate isn’t solely based on the value of their home alone, it does account for a sizable proportion of the average inheritance tax bill. A previous FOI request found that in London, bricks and mortar forms 50% of the average inheritance tax bill, while in the South East it’s 39%.

Since the introduction of the stamp duty holiday in July 2020, the property market has boomed, with the average UK house price increasing by 23%, or £54,357. What’s more, between 2019-20 and 2020-21, there has been a 17% increase in the number of estates classed as liable to be hit by inheritance tax, equating to a jump of almost 4,000 more estates.

In 2020-21, the Government pocketed £793m more in inheritance tax liability when compared to the previous year. While the largest percentage increase was seen across the West Midlands at 33%, it was again the South East that saw the largest monetary hike with an annual increase of £190m alone.

Managing Director of Final Duties, Jack Gill, commented:

“Although the sum of your estate isn’t solely based on the value of your bricks and mortar portfolio, it’s likely to be the most significantly valuable asset for most and will ultimately dictate just how much inheritance tax they could be liable for.

Rather convenient then, that during a global pandemic, a Government designed initiative to encourage homeownership has inadvertently pushed property prices to record highs. The result of which has been a sharp increase in the number of estates liable for inheritance tax, not to mention a significant increase in the sums owed. Unlike other assets such as investments, a property can’t be as easily transferred or gifted, and this is why more and more people are falling foul of the inheritance tax trap.

While house prices may be cooling slightly, they remain close to historic highs and this is largely why the Government expects to pocket £7bn a year in inheritance tax over the next five or so years.”

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