A total £3.4bn inheritance tax was paid last year – the most since 2007 – as more households were caught by the inheritance tax net, with women paying 35 per cent more than men.
HM Revenue and Customs’ figures show a six-year high increased from £3.1bn the previous year. The total was only marginally below the estimated £3.5bn forecast by the Office of Budget Responsibility. These figures revealed women are paying more death duties than men. Last year 9,016 women paid £1.53bn, which averages out at £169,000 per person.
Last year, fewer men fell into the inheritance tax net, which resulted in them paying an average of £161,000. The reason no doubt is that women are more likely to outlive their male spouse having inherited from them.
The figures will increase the pressure the on Conservative Party to increase the IHT allowances in their manifesto for the 2015 General Election.
The last time HM Revenue and Customs experienced such a sizeable tax take was in 2007-2008, when a record £3.8bn was paid. The following year takings dropped due to the ability to transfer unused ‘nil-rate band’ from a deceased spouse – although allowances have been frozen at £325,000 per person since 2009, as a result of which the takings each year since 2009 have risen again.
Stephen Berry of NFU Mutual has said: “Over the past two decades inheritance tax has gone from being an issue for the super-wealthy to something that affects millions of people – driven largely by the rise in house prices.” HMRC explained that a third of a taxpaying estate’s total value is made up of residential property, and the increase in house prices has contributed to the overall tax take.
IHT receipts will continue to rise until the tax threshold is increased and the Institute for Fiscal Studies (IFS) found inheritance tax receipts will reach a 45-year high in four years’ time by 2018 if the threshold remains the same. This correlates with figures which suggest a number of families will see their inheritance tax bill increase by a third to £35,600.
Married couples can effectively currently bequeath a total of £650,000 tax free within the nil rate band, frozen at £325,000 per person. Inheritance tax is levied at a rate of 40% on the value of an estate above the threshold.
Economists and Tory MPs have called for radical reform to inheritance tax.
There is much that people can do to make the most of the various IHT exemptions and reliefs. In particular, for those with high incomes, the exemption for regular gifts from surplus income is worth investigating. Sufficient paperwork is required to evidence this, but the time spent on collecting the documentation could save your family time and expense in future and result in an overall lower inheritance tax bill.