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UK inheritance tax liabilities climbed to their highest levels on record in the 2021-22 tax year, driven by increased asset values and a long-standing freeze on the tax-free threshold.
Inheritance tax liabilities rose 4 per cent to £6bn compared with the previous year, said HM Revenue & Customs on Wednesday.
The tax-free threshold has been fixed at £325,000 since 2009 rather than increasing with inflation. The previous Conservative government extended the freeze until 2027-28.
The number of estates paying inheritance tax rose 3 per cent to 27,800. But the proportion of UK deaths that resulted in an inheritance tax bill remained steady at 4.4 per cent.
On Tuesday, Labour chancellor Rachel Reeves told The News Agents podcast she would have to raise taxes at the Budget on October 30. She declined to say which taxes but repeated her pledges not to raise VAT, national insurance or income tax.
“Given the Labour government has remained tight-lipped surrounding its tax plans outside of its pledge not to increase income tax or national insurance, we may soon see the IHT tax take increase even further,” said Quilter tax and financial planning expert Shaun Moore.
Zena Hanks, partner at accountancy firm Saffery, added: “The big question is whether the government will see a tax that raises billions from only a small proportion of families as being an obvious target for further tax-raising measures.”
The impact of the frozen tax threshold coupled with rising asset values — a process known as fiscal drag — has been increasing the inheritance tax take. Since the tax-free threshold was frozen in 2009, inheritance tax receipts have more than doubled, HMRC’s statistics showed.
Several tax experts said that if Reeves were to raise further revenue from inheritance tax, she would likely do so by limiting reliefs available to estates.
The Institute for Fiscal Studies and Demos have both called for tightening two inheritance tax allowances: agricultural property relief and business relief. These give up to 100 per cent relief on farmland and business assets respectively.
HMRC’s statistics showed the value of tax relief claimed under both these exemptions totalled £4.4bn in 2021-2022, an increase of £0.2bn on the previous year.
