IHT ‘not keeping up with property prices’

News that the Treasury’s Inheritance Tax (IHT) take has hit a record high in the past year has sparked concerns that IHT is not keeping up with the pace of UK house price growth.

Earlier this week, HM Revenue & Customs (HMRC) revealed that IHT receipts had increased by eight per cent over the past year, soaring to a record-breaking £5.2 billion.

Meanwhile, figures from HM Land Registry suggest that the average UK property now sells for approximately £243,583 – just shy of £80,000 below the IHT exemption threshold or ‘nil rate band’, which has remained frozen at £325,000 for the past decade.

Under existing rules, any individual estates that push above this threshold are liable to pay IHT at a rate of 40 per cent of their total value – meaning that an ever-increasing number of British families are getting caught out by the so-called ‘death tax’.

According to a recent report in property magazine Buy Association, homeownership levels among the over-50s have increased rapidly over the past few years, indicating that many older Britons are highly unlikely to have overall assets of less than £325,000.

In fact, up-to-date figures suggest that today’s over-50s own more than £2.3 trillion of the UK’s overall £4 trillion housing wealth – with many owning one or more buy-to-let properties on top of their own residential home.

Former Pensions Minister Steve Webb said that this was a real cause for concern when it comes to IHT.

“For many years Inheritance Tax limits have not kept up with house prices and that has dragged more and more people into the tax net,” he said.

Elsewhere, commentators have called on families to consider the importance of effective IHT planning strategies.

For example, individuals who donate 10 per cent or more of their estate to a charity can benefit from paying a reduced rate of IHT, while those who wish to leave property to direct beneficiaries in their Wills can potentially pass on an additional £125,000 of property value tax-free by using the additional residence nil rate band (RNRB).