Taxpayers paid £2.1 billion in inheritance tax between April and July this year – up £0.5 billion compared to the same period last year.

New data from HMRC reveals inheritance tax (IHT) receipts were a third higher between April and July 2021 than the same period in 2020. For July this year, the Government received £570m in IHT.

What has caused the increase in IHT receipts?

The rise in IHT payments is believed to be due to higher volumes of wealth transfers taking place during the Covid-19 pandemic.

The increase could also be because of the decision announced earlier this year to freeze both the nil rate and residence nil rate bands until at least April 2026.

Each person has their own nil rate band (NRB), and this threshold remains at £325,000. There is no inheritance tax to pay up to the NRB threshold, but any estate that exceeds this level is usually liable for IHT on death at 40%.

The residence nil rate band is an extra allowance, which is available when someone passes on their home to their children or direct descendants. The threshold stays at £175,000 per person.

(And remember, there’s usually no IHT to pay when assets are left to a spouse or civil partner.)

It seems likely the freezing of the nil rate bands has seen more estates fall above the threshold for paying inheritance tax. Plus, rising property prices may also be playing a part in the increase in IHT receipts.

Our thoughts

Inheritance tax is a tax on the estate (the property, money and possessions) of someone who has died. It’s probably the most disliked of all taxes because many feel it’s a tax on money and assets that have already been taxed throughout a person’s lifetime.

But IHT is a fact of life and that’s why it’s sensible to take practical steps now to give yourself and your family the best chance of a comfortable and secure financial future.

Typically, inheritance tax planning takes seven years to take effect, so it’s important that anyone with a potential IHT liability begins to think about the process sooner rather than later.

It’s also important for you to talk openly with your loved ones about the future to avoid any potential pitfalls further down the line.

And the earlier you begin the process, the more effective your inheritance tax planning will be.

Professional tax advice

If you’re unsure where to start with your IHT planning, we can help you make sense of the process and feel confident you’re taking the right steps.

Our team of independent tax advisers will show you how to make the most of the Government’s allowances and reliefs, so you can pass on more of your estate to your beneficiaries.

Call Churchill Taxation today on 07813 434195 or email stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation