The number of estates in the UK paying inheritance tax (IHT) has risen by 17%, new figures released by HMRC have revealed.

According to the latest data published, there were 27,000 taxpaying IHT estates in the 2020/21 tax year, an increase of 4,000 (17%) compared to 2019/20.

Figures also showed that IHT tax liabilities created in respect of 2020/21 were £5.76bn, a rise of approximately £800m (16%) compared to the previous year. HMRC suggested this increase is likely due to the rise in the number of overall deaths in the UK in that year, which resulted in a knock-on rise in taxable wealth transfers. The number of deaths in the UK climbed from 612,000 to 722,000 (18%), which will have been due, at least in part, to the effects of the COVID pandemic.

HMRC’s data also indicated that in 2020/21, 3.73% of UK deaths resulted in an IHT charge, representing a decreasing of 0.03 percentage points since the 2019/20 tax year. This means the proportion has been relatively flat since the tax year 2017/18 – likely as a result of the introduction of a new tax-free allowance known as the residence nil-rate band (RNRB) from that year onwards.

The RNRB is available to estates that transfer their main UK residence to direct descendants on their death.

Investment manager at Wealth Club, Nicholas Hyett, commented: “A lot of the increase is probably down to the spike in house prices we saw during the pandemic, paired with the freeze in IHT bands all the way back in 2009. This ‘fiscal drag’ is a sneaky attempt by the Government to grab more cash without taxpayers noticing.

“The result is that families whose houses and assets wouldn’t have qualified for IHT just a couple of years ago, are now finding themselves dragged into this most hated of taxes despite no change in their underlying wealth. They live in the same house and enjoy the same standard of living – but now they fall victim to a tax that was originally targeted only at the very wealthy.

“Unfortunately, that’s a trend that’s set to continue. So long as IHT thresholds remain frozen, the number of families paying IHT is only likely to grow.”

Group communications director at Just Group, Stephen Lowe, added: “IHT continues to return a tidy sum to The Treasury with the latest data showing that it generated around £22m every day through the first quarter of this financial year – but rumours persist that the Government will consider taking the radical step of scrapping it to curry favour with the voting public.
 
“Regardless of what any political party may promise, these rising IHT receipts should act as a warning for people to remember to assess the entire value of their estate, including an up-to-date valuation their property.”

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