Families Caught up in Inheritance Tax Changes

23/08/2016

Soaring house prices and a spike in winter deaths has led to nearly 30,000 families paying a record £4.7bn inheritance tax bill because the Government has taken too long to implement changes, campaigners have said.

In last year’s budget, the Government announced that it was introducing more generous tax rules which would see the inheritance tax threshold rise £100,000 (or £200,000 for couples) from the current £325,000 limit. The changes, however, are not due to come into force until April 2017, meaning that relatives of people who die during this time will be stung by the 40% tax rate levied on estates valued above £325,000.

The £4.7bn death tax bill, which is 20% higher than last year, is based on data from HMRC which revealed that in 2012/13, around 14,000 deceased homeowners, whose estates paid IHT, would have qualified for the residential allowance, potentially reducing their tax bill to zero under the new rules.

The reason behind the increase in the number of estates subject to inheritance tax is thought to be the uplift in house prices. The average cost of a house in the UK rose by 5% in 2015 and significantly more in London and the South East where values surged by 12%.

According to projections released by the Office for Budget Responsibility (OBR), the number of family estates on which inheritance tax must be paid has quadrupled since 2010 to more than 40,000 this year.