UK families facing inheritance tax hits 35-year peak
The Office for Budget Responsibility (OBR) has released new figures that show the number of UK families paying inheritance tax (IHT) is at a 35-year high.
Surging house prices have pushed up the value of family assets above the static tax threshold, resulting in an estimated 40,100 families facing payments on their inheritance in the current tax year; almost three times as many as six years ago.
According to the official figures, the number of people affected by IHT is likely to rise to 45,100 in 2016/17, which will then be stemmed when the additional allowance for family homes takes effect in April 2017.
This is the largest number of families paying IHT in any year since 1979/80, Margaret Thatcher’s first year as prime minister, when a tax of up to 75 per cent was levied on inherited assets above £25,000.
Whereas 2.6 per cent of all deaths incurred IHT liabilities in 2009/10, the proportion has risen sharply to an estimated 7.1 per cent in 2015/16. The OBR projects it will affect eight per cent of estates in 2016-17.
In London, where average prices rose 64 per cent to £531,000 in the six years to October 2015, more and more estates are finding themselves subject to IHT.
However, during the Summer Budget last year the Chancellor announced a new relief designed to take thousands of families under the IHT threshold.
The main residence nil-rate band, which applies when a family home is inherited by descendants on death, will be gradually introduced between 2017/18 and 2020/21, rising from an initial £100,000 to £175,000 per person, allowing couples to jointly pass on a home worth up to £1 million tax-free from April 2020.
The OBR has estimated that when the allowance is introduced, the number of deaths subject to IHT will fall by one-third to 30,300, equivalent to 5.4 per cent of the total annual estates processed.
Despite reducing the numbers affected by IHT, the introduction of the new allowance will not cut the overall amount of tax raised on estates and the OBR has predicted that the Exchequer will still receive receipts of around £5.6 billion by 2020/21.