Inheritance Tax to hit more families – how you can reduce ‘conflict’ when paying IHT bills
Why are IHT receipts rising?
IHT is an unpopular tax among the population, with many dubbing it a “death tax”. This resentment has likely ramped up in recent months as it emerged the Government is collecting more from IHT.
While population growth and increased life expectancy are partially to blame for this, Mr Dawson explained the Government itself holds the largest responsibility for the rising bills.
“There are a number of factors affecting the increase of IHT, some of which are a natural consequence of population growth following ‘baby booms’ in 1940’s and 1960’s, increased life expectancy, and a propensity for that ageing population to retain a more significant level of wealth until they pass,” he said.
“Unfortunately, however, it is exactly this demographic that was most affected by Covid which led to a higher mortality rate over the preceding period. The economic influences come from a general increase in house price inflation which saw a rise of over 8.9 percent between April 2020 and April 2021 and share price recovery to a level previously seen prior to the pandemic.
“Ultimately however the biggest driver has been political, with the freezing of both the nil rate band (NRB) and the residence nil rate band (RNRB) until 2026.
“What this effectively means given the economic trends illustrated above, is that IHT receipts will continue to increase incrementally until at least 2026 without an explicit rise in the rate of taxation. This is because more and more estates have a growing value and as such will exceed the now capped relief provided by the NRB (£325,000) and RNRB (£175,000), with increasing frequency and scale.”
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