Inheritance tax hits record high: what are the thresholds?
Rise in property prices means more people are having to pay controversial levy
The UK Treasury collected a record amount in inheritance tax (IHT) over the last financial year, topping the £5bn mark for the first time.
In total, bereaved families stumped up £5.228bn in the last tax year - 8% more than in 2016-17, according to new figures released by HM Revenue and Customs (HMRC). The rise is being attributed to the increase in property prices.
The number of people having to pay IHT is also growing, “with the latest figures showing IHT was payable on a total of 4.2% of estates in 2015-16, rising from 3.9% in 2014-15 and 2.7% in 2009-10”, City A.M. reports.
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Around one in 20 families now pay inheritance tax, and the figure is expected to increase to one in ten in the coming decades.
Former pensions minister Steve Webb, director of policy at investment firm Royal London, told financial website This is Money: “By far the biggest element in most people’s estates is the property that they own.
“For many years inheritance tax limits have not kept up with house prices and that has dragged more and more people into the tax net. Even the introduction of an additional nil-rate band for families passing on a home to their children was not able to stem the growth in inheritance tax revenues.”
The new figures also show that a rise in deaths during the winter resulted in a 22% spike in inheritance tax receipts between 2014-15 and 2015-16. There were an estimated 43,900 “excess deaths” in the winter of 2015, resulting in double the average annual increase in inheritance tax for the period, says HMRC.
However, the most recent data “does not illustrate the full impact of a new ‘residential’ nil-rate band introduced last year in addition to the £325,000 standard nil-rate band”, says the Financial Times.
The Office for Budget Responsibility forecast that the new band could reduce inheritance tax receipts for the Treasury by around £200m in 2017-18, and by around £1.5bn in 2020-21.
What are the thresholds?
A certain amount can be passed on free of inheritance tax - the so-called nil-rate band.
Everyone in the 2018-19 tax year has a tax-free inheritance tax allowance of £325,000.
The standard inheritance tax rate is 40% of anything over this threshold, but you can pay less inheritance tax if you’re leaving property to a family member.
In April this new transferable allowance rose to £125,000. The allowance is due to rise again by £25,000 each April for the next two years, taking it to £175,000.
So if you pass on property to your children or grandchildren, your tax-free threshold stands at £450,000 this tax year, and will increase to £500,000 in 2020-21.
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