This is £0.6billion higher than in the same period a year earlier. Myron Jobson, Personal Finance Campaigner at interactive investor said: “The uptick in inheritance tax takings feels unsavoury in the context of the coronavirus pandemic. The reality is that the value of property and investments have and will drag an increasing number of estates into paying the charge in the coming years because both the nil-rate band and residence nil-rate band have been frozen until at least April 2026.”
The tax-free inheritance allowance, known as the nil-rate band, allows a person’s beneficiaries to inherit up to £325,000 of their estate without incurring tax.
This is as long as the estate is passed to the spouse or civil partner of the person who died, a charity or if its value is below the inheritance tax threshold of £325,000.
Anything above this threshold, the standard 40 percentage inheritance tax rate applies.
Whilst the nil-rate band has remained the same since 2010/11, the main residence nil-rate band usually rises each year with inflation.
The nil-rate band has increased each tax year by £25,000 and in 2021, it reached £175,000.
The next increase was due this April, however it was announced in the 2021 Budget that inheritance tax thresholds will instead be frozen until 2026.
It could mean that more people will be dragged into the IHT net as house prices rise.
People can reduce the liability of inheritance tax by giving gifts.
Gifting assets before a person dies can reduce how much inheritance tax will be due on their estate as long as it is made seven or more years before their death.
In this case, the recipient will not have to pay any IHT on the gifted estate.
If a person dies within seven years of making the gift, IHT may be incurred.
It will depend on the type and value of the gift.
People who make gifts during their lifetime that aren’t covered by their tax-free gift allowances and then die within seven years of making the gifts, may have a smaller nil-rate band on their death.
The value of these gifts will reduce or eliminate their nil-rate band, meaning that less of their estate will be passed on tax-free.
Any unused nil-rate band is transferred to a surviving spouse or civil partner.
If a home is held in a discretionary trust, it would not normally form part of a person’s estate.
In these circumstances, the estate would not be eligible for the residence nil-rate band even if the home goes to the beneficiary’s direct descendants when the beneficiary dies.
People can pay inheritance tax at a reduced rate of 36 percent on some assets.
This is only possible if they leave 10 percent or more of the net value to charity in their will.
The nil-rate band is the threshold above which inheritance tax is payable.
According to Her Majesty’s Revenue and Customs (HMRC), only one in 20 estates in the UK pay inheritance tax.