The Office for Budget Responsibility (OBR) has released new figures showing that the number of UK families paying inheritance tax (IHT) is at a 35-year high.
Surging house prices have pushed up the value of family assets above the static tax threshold, resulting in an estimated 40,100 families facing payments on their inheritance in the current tax year; almost three times as many as six years ago.
According to official figures, the number of people affected by IHT is likely to rise to 45,100 in 2016/17, which will then be stemmed when the additional allowance comes into effect for family homes in April 2017.
This is the largest number of families paying IHT in any year since 1979/80, where a tax of up to 75% was levied on inherited assets above £25,000.
Whereas 2.6% of all deaths incurred IHT liabilities in 2009/10, the proportion has risen sharply to an estimated 7.1% in 2015/16. The OBR projects it will affect 8% of estates in 2016/17.
In the Summer Budget last year the Chancellor announced a new relief designed to take thousands of families under the IHT threshold.
The main residence nil-band, which applies when a family home is inherited by descendants on death, will be gradually introduced between 2017/18 and 2020/21, rising from an initial £100,000 to £175,000 per person, allowing couples to jointly pass on a home worth up to £1 million tax-free from April 2020.
The OBR has estimated that when the allowance is introduced the number of deaths subject to IHT will fall by one-third to 30,300, equivalent to 5.4% of the total annual estates processed.
Despite reducing the numbers affected by IHT, the introduction of the new allowance will not cut the overall amount of tax raised on estates and the OBR has predicted that the Exchequer will still receive receipts of around £5.6 billion by 2020/21.
If you need help with your inheritance tax planning, or would like to know more about how the changes will affect you, contact us to speak to our Tax Partner David Gillies today.