HMRC inheritance tax take hits £4.7bn all-time high as ‘Middle England’ bears brunt
15 August 2016
HMRC’s income from Inheritance Tax has hit a record £4.7bn in the last year* as more and more ‘Middle England’ estates surpass the threshold for IHT, says Wilsons, the leading private client law firm.
The Inheritance Tax income received by the Revenue in 2015 is a 17% increase in the last year alone, and a 91% rise on 2009-10, the year in which the IHT threshold was last raised.
Wilsons explains that the £325,000 threshold for IHT to be paid has not changed since April 2009, and is not scheduled to be re-examined again by the Treasury until at least April 2019. In order to keep pace with inflation since 2009, the threshold would now have to be increased to £391,000.
Wilsons says that as personal wealth rises, Inheritance Tax has gradually become a general tax on the middle class, rather than on significant inherited wealth, as originally intended. It explains that the relative importance of IHT to HMRC has been increasing in recent years, as it now makes up 0.87% of all tax receipts in the UK, compared with 0.57% in 2009-10.
The firm adds that former Chancellor George Osborne last year announced the introduction of an additional Residential Nil Rate Band (RNRB), giving individuals the opportunity to pass on additional £175,000 of residential property to their direct descendants free of IHT by 2020. This, in effect, will raise the IHT threshold to £1 million for a married couple, so long as at least £350,000 of the estate comprises a primary residence.
Despite that, explains Wilsons, these measures will create a ‘two-tier’ inheritance system, in which childless couples and individuals who have never owned their own property face a significantly lower inheritance tax threshold.
Tim Fullerlove, Partner at Wilsons, comments: “Inheritance Tax is gradually becoming a general tax on ‘Middle England’, and the longer it goes on, the harder it will be for the Treasury to let that income go.”
“With each passing year, more and more and more middle-class estates are passing the IHT threshold, and are being penalised by a tax that was never intended for them.”