Inheritance Tax Burden Doubles: What You Need to Know!

Over the past decade, the amount of Inheritance Tax bill has doubled with more numbers of properties being affected. One of the major reasons for this is the freeze in tax threshold and the increase in older people gifting their assets to family members. The problem does not lie with the higher amount of tax bill but with taxpayers getting tax bills out of nowhere. Let us find out why.

Why Are Taxpayers Getting Surprise Inheritance Tax Bill?

The Inheritance Tax threshold is currently at £325,000, meaning if your property is worth less than £325k, no amount of tax is liable. This threshold has been frozen since 2009. Also, the residential nil rate band (RNRB) is £175,000, which has been frozen since 2020. These figures are expected to stay frozen until the Tax Year 2027/28.

Due to frozen tax thresholds, people are realising the value of their properties crossing the threshold amount, causing them to reduce their property size by giving it away to family members. However, what people do not realise is that if a taxpayer who gifts their property dies within 7 years of giving it away, IHT will be liable.

So, taxpayers are getting IHT tax bills as a surprise on gifts they received several years ago.

How Has Inheritance Tax (IHT) Doubled?

In the Tax Year 2011/12, properties affected by IHT were 590. This figure increased every year making it to 1300 properties affected by IHT by the Tax Year 2020/21. Also, the amount of IHT collected has doubled in a decade from £101 million to £256 million. An average property pays £25,000 more tax in ten years, paying £196,923.

According to recent findings, 4.4% of properties were impacted by IHT in the Tax Year 2021/22. More than 7% of the properties are expected to pay IHT by the Tax Year 2032/33.

Conclusion

Planning to give your properties or assets to a family member as a gift? You should note that if you die within 7 years of giving it away, your family member will be subject to Inheritance Tax (IHT), which may come as a surprise. So, it is better to plan and seek professional advice to prevent such surprises.