HMRC national statistics have revealed that Inheritance Tax liabilities for April 2023 to September 2023 are valued at £3.9 billion, this being a £400 million increase from the same period last year.
It appears that rising asset prices could be a contributory factor which has led to the increase in Inheritance Tax liabilities. As of August 2023, the average house price in the UK was £291,044 as shown by the Land Registry. This figure is vastly higher than their 2009 reported average of £157,234.
Despite this increase, the Chancellor has announced that the Nil-Rate Band of £325,000, a figure unchanged from 2009, will remain the same until 2028. Similarly the Residential Nil Rate Band of £175,000 is to remain unchanged. Arguably, the frozen thresholds no longer accommodate for the fast-growing inflation and price rates of today’s economy. As a result, more and more people are falling within the category of taxable estates.
Although, Inheritance thresholds remain frozen, costs of living have been on the rise. The Office of National Statistics reports consumer goods and services have risen by 9.6% since October 2022. The Living Wage Foundation report after paying for essentials, 27% of low paid workers had no money left. Nicholas Hyett, Investment Manager at Wealth Club comments on the current affairs, stating, “Inflation, rising house prices and frozen allowances are pushing more families within the reach of inheritance tax every year. Given they’re no wealthier than they were before, and possibly worse off given the cost-of-living crisis, it’s no wonder inheritance tax is the most unpopular tax in Britain”.
Future of Inheritance Tax
A modernisation of the Inheritance Tax System is needed so that thresholds and tax rates align with the rise in asset prices. However, this is unlikely to take place in the next few years. As a result, as estimated by the Office for Budget Responsibility, tax liabilities could increase to 37 billion over the next five years.
Uncertain and costly times mean that careful estate planning is becoming more essential than ever before. There are numerous ways in which a person can reduce the amount of Inheritance Tax that would be payable on their death.
If you would like further information regarding the above, please contact Charlotte Keating, Partner and Head of Private Client, and Bethany Coward, assisting paralegal based in our Manchester Office.
