This year has brought particularly bad news for those families who may need to pay inheritance tax in the near future. The Office for Budget Responsibility (OBR) – the Government’s non-departmental public body who provide independent economic forecasts and analysis of public finances – have suggested that a number of factors are feeding into rising inheritance tax cost in the coming years.
Rising house prices
It’s particularly bad news for those of you who live in the south of England, as rising house prices are one of the metrics that the OBR has taken into account. Inheritance tax (IHT) is charged at 40 per cent on any estate worth more than £325,000 – so if you’re in an area where house prices have risen dramatically over the last decade or so, you could be looking at a big bill.
The OBR have taken another look at their previous projections, and their most recent figures on inheritance tax costs now suggest that they expect £5.3bn to be collected this year rather than the previously stated £5bn. Their revised projections go on to say that they now also expect an additional £200m will be raised through inheritance tax over the following two fiscal years.
A number of factors to blame
So, what’s behind the big rise? Well, beyond the huge hike in house prices over the last 20 years or so, it also appears that a growing population is a key factor. More people living in the UK means more people dying here too – and so this has a direct impact on the amount of money that the Government can expect to receive by taxing their estates.
The fact also remains that the OBR simply expects the Government to get tougher on enforcing inheritance tax rules – and it all adds up to an expected total of £32.4bn in inheritance tax to be paid to HMRC between 2016 and 2022.
“It’s clear that the taxman is cracking down hard on inheritance tax by looking more closely at people’s estates and challenging claims for reliefs,” says Sean McCann, chartered financial planner at NFU Mutual. “When inheritance tax receipts rise, it’s usually because of a buoyant housing market. Now, with property prices in many areas of the country stagnating, it’s difficult to see what could have caused such a sharp increase in receipts other than a more aggressive approach to inheritance tax.”
While inheritance tax still affects only a relatively small number of estates – around 4 per cent of all deaths – the figures that the Government receives are still high – between April and October this year they received £3.2 billion – a hike of 15.1 per cent on the same period the year before. They’re likely to receive an eye-watering £5 billion this tax year.
At Turner Little, we’re here to help you navigate what can be a complex and confusing inheritance tax landscape. We offer a comprehensive and cost-effective probate service that will help you to complete and submit the relevant inheritance tax return to HMRC. We’re also able to help with advice on taking out an executor’s loan if you need to cover the tax. Get in touch today.