Inheritance tax is a topic that often evokes mixed emotions. On one hand, it represents a financial burden for families who have lost a loved one. On the other hand, it is a necessary source of revenue for the government. However, recent reports from HM Revenue and Customs (HMRC) have revealed that inheritance tax receipts have hit a record high of £8.2 billion in the 2024-25 fiscal year. While this may seem like a cause for concern, it is important to understand the factors that have contributed to this increase and how it may impact families in the future.
The main driving force behind this record-breaking figure is the frozen thresholds for inheritance tax. In 2009, the government froze the threshold at which inheritance tax becomes payable at £325,000. This means that any assets above this threshold are subject to a 40% tax rate. With property prices and asset values on the rise, more families are finding themselves caught in the inheritance tax net. This has resulted in a significant increase in the number of families paying inheritance tax, leading to the record high in receipts.
In addition to the frozen thresholds, rising asset values have also played a significant role in the increase in inheritance tax receipts. As the value of assets such as property, investments, and businesses continue to rise, so does the potential tax liability. This is especially true for families who have inherited property or businesses from their loved ones. While it may be a positive sign for the economy, it also means that more families are facing a higher tax bill.
Furthermore, changes to pensions and farmland relief are also expected to contribute to the increase in inheritance tax liabilities in the future. The government has recently announced plans to reduce the pension lifetime allowance from £1.073 million to £1.055 million in the 2024-25 fiscal year. This means that individuals with pension pots above this threshold will face a higher tax rate of 55% on any excess amount. Similarly, the government has also proposed changes to farmland relief, which could result in more families being subject to inheritance tax on their agricultural land.
While these figures may seem daunting, it is important to note that inheritance tax is still only paid by a small percentage of the population. In fact, only 4% of deaths in the UK result in an inheritance tax bill. Additionally, there are various tax planning strategies and reliefs available to help families reduce their inheritance tax liability. These include gifting assets, setting up trusts, and taking advantage of exemptions and reliefs such as the annual gift allowance and spouse exemption.
In conclusion, while the record high in inheritance tax receipts may be a cause for concern for some families, it is important to understand the contributing factors and the potential impact on future liabilities. The frozen thresholds, rising asset values, and proposed changes to pensions and farmland relief have all played a role in this increase. However, it is also important to remember that inheritance tax is still only paid by a small percentage of the population and there are ways to mitigate the tax liability. As always, seeking professional advice from a financial advisor or tax specialist can help families navigate through these complex tax laws and plan for their future.
