Inheritance Tax Receipts are on the rise

  • 21st April 2022

The Office for Budget Responsibility (OBR) has recently revised its forecasts for Inheritance Tax (IHT) receipts over the coming five years, with the recent upward trend expected to continue year-on-year, from £6.7bn in 2022/23 to £8.3bn in 2026/27.

The IHT ‘death rate’ of 40% has not increased, and with the standard nil rate band of £325,000 (NRB) and the residence nil rate band of up to £175,000 (RNRB) available for many people, why does the OBR expect receipts to keep rising?

We see a number of reasons:

  1. Investment growth. A balanced portfolio may have comfortably achieved 30% growth over the past five years, potentially turning £500,000 into £650,000 if no withdrawals were taken.[1] This could move someone from being on the cusp of paying IHT to having a significant problem.
  2. Frozen allowances. The NRB has been at its current rate since 2009 and is not scheduled to change before 2026 (as is the RNRB). So, while investments gain value and property prices rise, the threshold for paying IHT will not.
  3. Old pension plans. Most modern pension plans offer flexible death benefits that can protect the fund value from IHT, but this is not the case with lots of older plans. If the pension forms part of the estate, beneficiaries may only receive 60% of what they anticipated.
  4. Rising property prices. Over the past five years, house prices in the Yorkshire and Humber region have grown by 27% to an average of £226,000.[2] Last year the average detached property in the wider region sold for £367,000.[3] For a married couple that would mean the RNRB is used in full and the standard NRB would be needed as well.

However, perhaps the biggest single reason why receipts are forecast to rise is simply down to a lack of professional financial planning. I’ve stressed the word professional because this is an area where we see DIY solutions or ‘quick fixes’ fall foul of legislation, leading to unexpected and upsetting bills later on.

There is the old saying that IHT is the only voluntary tax and to a large degree this is true - there are over a dozen different ways to mitigate against it, which is actually a very generous offering from HMRC when compared with other taxes.

The first step is to decide who you’d like to see benefit, when you’d like them to benefit and what you’d like them to benefit from. Once you know the answers to these questions we can help find the right solution for you so please do get in touch.

[1] Based on IA Mixed Investment 40-85% Shares sector, data via FE Analytics.
[2] UK House Price Index Yorkshire and the Humber, data via FE Analytics.

This document is for information only and should not be construed as advice or an offer, invitation or solicitation to enter into any financial obligation, activity or promotion of any kind. Please talk to your Financial Adviser as to the suitability of any investment.

All data and figures referred to in our news section are correct at the date of publishing and should not be relied upon as still current.

Information contained within this article is not a personal recommendation of Forrester Boyd Wealth Management. The wording in this article is not to be construed as an offer or advice. We recommend you seek advice concerning suitability from your investment adviser.