House price boom means families face £266k inheritance tax bills

·2-min read
illustration - TMG
illustration - TMG

The average inheritance tax bill will surge to £266,000 this year as soaring inflation pushes more homeowners over the threshold, new analysis shows.

A freeze on tax-free thresholds combined with massive post-pandemic house price growth means that more estates are liable for inheritance tax, experts warned.

The average bill for a family caught by inheritance tax is now expected to be £266,444 this financial year, according to analysis by investment service Wealth Club.

This will be a jump of 27pc when compared to before the pandemic in the 2019-20 tax year.

It means in the decade since the 2012-13 tax year, the average inheritance tax bill will have risen by 57pc.

Families paid £500m in inheritance tax last month, an extra £10m compared to April 2021, new data from HMRC shows.

Alex Davies, founder of Wealth Club, said: “Inheritance tax really is the gift that keeps on giving, to the Treasury at least.”

Each person in Britain has a tax-free inheritance allowance of £325,000. The value of an estate above this nil-rate band can be subject to a tax rate of up to 40pc.

The nil-rate band has been frozen at £325,000 since 2011, despite the average house price increasing by 66pc.

Relatives inheriting the family home from a parent are also protected by a residence nil-rate band of up to £175,000 on top of the £325,000. This was introduced in 2017 and has increased annually with inflation until last year, when Chancellor Rishi Sunak froze the level until 2026. Since then, inflation has hit a 40-year high.

The Office for Budget Responsibility, the fiscal watchdog, forecast that the inheritance tax take this year will hit £6.7bn, meaning an average tax bill per household of more than a quarter of a million pounds.

Wealth Club warned that not only are bills increasing, but a larger number of people have to pay them, as the frozen thresholds make paying inheritance tax increasingly mainstream.

In the tax year ending April 2022, 25,146 people paid inheritance tax, a jump of 9pc compared to a year earlier.

In the last 10 years, the number of households paying inheritance tax has surged by 40pc.

Mr Davies said: “With the pace of property price growth still at nearly 10pc, it’s no wonder so many more households are being pushed over the inheritance tax threshold.”

Families can reduce the tax on their estates by gifting money from regular income. As long as these are not deemed to affect the giver’s standard of living, and they are gifted at least seven years before the person dies, they are completely tax free.