High-value inheritance tax bills surface for nearly ten percent of estates, surpassing £500,000
Increasing Trend of Large Inheritance Tax Bills in the UK
The number of estates liable for inheritance tax bills of £500,000 or more has been on a steady rise over the past few years, according to recent data.
In the 2018/19 tax year, the exact number of estates liable for more than £500,000 in inheritance tax is not specified. However, by the 2021/22 tax year, about 2,520 estates faced a bill of at least £500,000. This represents a period during which the number of estates paying over £500,000 increased by 29% compared to 2018/19.
Looking forward to the 2025/26 tax year, estimates suggest that if current trends continue, about 3,524 estates could pay over £500,000 in inheritance tax by the end of that year. This would indicate a further increase from the numbers seen in the 2021/22 tax year.
This trend suggests that more estates are being impacted by large inheritance tax bills due to factors such as rising asset values and changes in tax laws. It's important to note that giving more gifts than the allowed limit may result in the inheritor being liable for paying inheritance tax if you die within seven years of making the gift.
In the 2021 to 2022 tax year, nearly one in ten estates liable for inheritance tax were given a bill of £500,000 or more. A total of 27,850 estates paid inheritance tax in 2021/22, with more than 2,520 (9%) facing a tax bill of at least £500,000.
Starting from April 2027, pensions will be included in the value of an estate when the individual dies, potentially increasing estate values and the number of estates liable for inheritance tax. This could lead to thousands more estates facing new or increased inheritance tax liabilities by 2030.
Rebecca Williams, divisional lead of financial planning at Rathbones, emphasizes the importance of effective financial planning to mitigate the increased inheritance tax risk from pensions. She also expects more people to be "caught out by IHT charges" due to the availability of gifting allowances and the seven-year rule.
If you leave your house to direct descendants, the residential nil-rate band adds an extra £175,000 to the nil rate band, allowing you to leave a home worth up to £500,000 tax-free. This can be increased to £1 million if you and your spouse leave your estates to one another.
Without proactive steps, more estates may face unexpected inheritance tax bills. If you're concerned about your estate's potential inheritance tax liability, our website has a guide that outlines eight ways to reduce your inheritance tax bill.
It's also worth noting that the steady rise in house prices and asset values means more estates are being taken above the inheritance tax threshold just because thresholds have not kept pace with inflation. The nil-rate band for inheritance tax is £325,000.
Williams also points out that the deep freeze on both the main nil-rate band and the residence nil-rate band has led to a creeping form of fiscal drag. She encourages individuals to take proactive steps to manage their inheritance tax liabilities.
HMRC reported that inheritance tax receipts surged by 10% in the 2024/25 tax year, totalling £8.2 billion, which is the highest haul ever recorded. This underscores the importance of understanding and managing your inheritance tax liabilities.
In conclusion, the trend shows a rising number of estates facing large inheritance tax bills. It's crucial for individuals to be aware of this trend and take proactive steps to manage their inheritance tax liabilities. Effective financial planning can help mitigate the potential impact of inheritance tax on your estate.
- In the future, with pensions becoming part of the estate's value, more people might face inheritance tax liabilities due to the increased estate values.
- Rebecca Williams, a divisional lead in financial planning at Rathbones, emphasizes the significance of effective wealth-management strategies, including personal-finance planning, to reduce the risk of inheritance tax.
- To avoid unexpected inheritance tax bills, it's advisable to engage in proactive business strategies, such as exploring gifting allowances and understanding the seven-year rule, as well as utilizing the nil-rate band and residential nil-rate band when leaving properties to direct descendants.
